Don't agree that it's the the single best performing ratio in isolation and quite frankly it doesn't make any sense because the ratio particularly for growth stocks and in various sectors like tech, biotech, pharma etc is completely useless in isolation. In my finance degree they emphasised that on its own that it's not particularly useful and the studies I've looked at all show PEG and P/E combo as more accurate and I don't know any investor who actually uses p/b seriously, but a lot who take PEG. Of course no investor is using just one in isolation though and will look at p/b, just not on its own.
https://link.springer.com/article/10.1023/A:1012050524545
"We also find that the P/E benchmark valuation method performs better than the P/B benchmark valuation method and the combined method outperforms either the P/E or the P/B method. These results imply that earnings are more important than book value as a single-number firm valuator over our sample years (from 1973 to 1992) and that both earnings and book values are value relevant, one does not substitute perfectly for the other."
https://www.investopedia.com/ask/an...better-metric-booktomarket-ratio-analysis.asp
"
The book-to-market ratio shows the relative premium an investor is presently willing to pay above the company's book value.
One problem with using book value is it is easily manipulated by accounting standards and subjective accounting decisions. Unless the investor is confident that two companies share similar accounting judgment, the book-to-market ratio can be unreliable compared to P/E."
Another reason reason why it isn't worthwhile as a single ratio for a noobie not looking at other factors
http://quantitativealpha.com/pb-ratio-as-a-strategy-not-as-good-as-others/
"During the analysed period of 1995 to 2016, we find that the quintile consisting of stocks with the lowest P/B just barely beats the universe of 1000 stocks with 1.42% margin per year and outperforms MSCI ACWI index by 2.37% per year. Investing in the cheapest stocks based on the lowest P/B does not give significant outperformance compared to investing in the highest P/B. In our study the spread between the lowest and the highest quintile is only 1.07%."
http://quantitativealpha.com/pe-ratio-as-a-strategy-undervalued-stocks-have-higher-returns/
During the analyzed period of 1995 to 2016, we find that the quintile consisting of stocks with the lowest P/E provides the highest returns. In twenty-one-year period the lowest P/E quintile yielded 11.61% per year, compared to analyzed universe of 1000 companies of global stocks which returned 7.55% a year and the highest P/E quintile with 4.83% returns. Investing in the cheapest stocks based on the lowest P/E beat the highest P/E stocks by a spread of 6.78%, almost double the returns.
get on the money train
