The reasons are many, but the primary reason is that the assets are not always valued correctly on the books. This is a good benchmark to start with, but should be examined further to establish the correct valuation. This means you can purchase the stock (or the business) for less than its net worth. One of the rules of thumb to find value stocks is to look for stocks with the P/B ratio of under 1. Finding Value Stocks: Low Price to Book Ratio Filters in such cases also review the return the company generates off its equity by looking at the ROE, or return on equity number. You need to carefully consider why this may be before you write the stock off as overvalued. In all cases, a high price to book ratio should be a cause for a pause. For example, service companies that do not have too much equipment or property on the balance sheet may have higher price to book. Some industries tend to have lower tangible assets and the stock can trade at higher book multiple naturally.It is always a good idea to dig deeper than just reading off the book value from the balance sheet. Perhaps the stock is not overvalued in this case. How accurate is the book value on the financial statements? Sometimes the book value is severely underreported on the balance sheet, and this may cause the price to book ratio to be abnormally high.At the same time, you need to keep in mind a few insights when you evaluate a stock using its price to book. Investors use this metric to determine how a company's stock price stacks up to its intrinsic value. This may be true in most cases, and indeed there is empirical evidence that a bias towards low price to book stocks tends to improve returns as it biases the portfolio towards value. Generally investors come to think of a high price to book ratio as overvalued as the price may be too high given the book value of the stock. Whenever we talk about a ratio, it is important to keep in mind that the ratio depends on the values of both numerator and the denominator.