If the current stock price is undervalued, the future stock value will increase, and if the current stock price is overvalued, the future stock value will decrease. PBR, PER, and ROE are indicators that show how the current share price is undervalued or overvalued.
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| SK Hynix PBR Band Chart (Source: DB Financial Investment) |
□ Price book-value ratio (PBR)
PBR : Ratio of stock price to net assets per share (PBR = stock price / net asset value per share)
As one of the stock price standards to see how many times the stock price is traded per share, it is obtained by dividing it by net assets per share (sum of capital stock, capital surplus, and retained earnings) based on book value. Also called PBR, it is an important indicator of stock investment along with PER (Price Earnings Ratio).
In reality where bankruptcies are frequent, once a company goes bankrupt, it must pay off its liabilities first from its total assets. The remaining asset is the net asset, and a company with a large financial structure has a strong and stable financial structure.
Net assets per share = (total assets－total liabilities) ÷ number of outstanding shares
Earnings-per-share ratio (PBR) = Share price ÷ Earnings-per-share
The lower the multiple, the higher the growth and profitability of the company. While PER is an indicator that evaluates a company’s profitability and stock price, PBR is an indicator that judges a company’s stock price in terms of its financial condition.
Net worth is the balance sheet’s assets after deducting its liabilities. PBR is a measure of stock price in terms of financial content.
Example Assuming that A.B.C’s stock prices are 20,000 won each, A has a net asset of 20,000 won per share, B has a net asset of 40,000 won per share, and C has a net asset of 10,000 won per share.
With A=20,000/20,000=1 PBR, the stock price equals the asset value per share.
With B=20,000/40,000=0.5 PBR, the share price is undervalued compared to the asset value.
With C=20,000/10,000=2 PBR, the stock is overvalued compared to its asset value.
In the stock market, companies with PBRs below 1 are good for investors. This is because companies that have more real estate, facility facilities, and other floating funds than profits from sales are undervalued.
P/B is the ratio of a company’s share price to its value. The PBR is the ratio of the share price to the value of the company when it is liquidated.
1. PBR is an indicator that indicates how many times a stock is traded at a share price per share of its net assets.
2. Net asset per share is calculated by dividing the total capital on the balance sheet by the total number of issued shares. This is the amount that will be distributed to shareholders when a company is dissolved. If the PBR is lower than 1, shareholders will benefit more from liquidation of the company.
3. The higher the PBR, the better the business condition, and theoretically, it is never lower than the stock price.
