A stock's average price/book ratio over the past five years. It is calculated by adding the price/book ratios each fiscal year for the past five fiscal years, then dividing the sum by five.If the price/book ratio for a given year exceeds 20, its value is capped at 20 when calculating the average.
Benefit
By comparing the five-year average price/book ratio with the current price/book ratio, you can quickly see if the company is currently valued higher or lower than it has been historically.
Origin
The company’s most recent price is received from ComStock, a division of Interactive Data Corporation.
For the Pros
Use the following formula to look for companies that trade at a discount to their historical valuations. The same equation can be used with Price/Earnings, Price/Sales and Price/Cash Flow:
PB Current / PB 5-Year Average