PB Premium vs Sector
This data item is calculated as the percentage difference between the stock PB ratio and the sector PB ratio
PB ratio Premium / Discount
Stock A 3.8 40.7%
Stock B 1.3 -51.9%
Sector average 2.7 --
As can be seen from the table above, stock A has a higher PB ratio than the sector average which results in a positive output. When the output is positive it is said that the stock is trading at a premium to the sector. In stock B’s case the output is negative, indicating that the stock’s PB ratio is lower than the sector’s PB ratio. In such a scenario it is said that stock is trading at a discount to the sector
A company’s PB ratio might be at a discount to the sector because the earnings potential of the company is considered to be low or the assets of the company are under stress. It is also possible that PB is at a discount as the market has mispriced the stock. Prudent analysis is necessary before making a purchase decision.