Why Use Book To Market And Not Price To Book?

Why Use Book To Market And Not Price To Book? by Tim du Toit, Quant Investing

[klarman]

Why do think we recommend that you use the book to market ratio, and not price to book when screening for undervalued companies?

A question we get a lot

If you don’t know you are not the only one - it is a question we have had from a lot of screener subscribers.

The simple answer - book to market gives you better results.

That is also the reason why you see that all academic research studies use the book to market ratio.

Let me explain.

How it’s calculated

The price to book ratio is calculated as - Market value / Book value (or Share price / Book value...