Along with P/E, price-to-book (P/B) is a common screen in what has been called (and mislabeled) value versus growth investing (with low P/B being “value”). The success of a strategy of investing in low P/B (or high B/P) has been documented by many, most famously by Fama and French in a 1993 paper from which they went on to develop a B/P investment factor. (See the papers in Your Library.) That work led to the “beta is dead” conclusion, with B/P replacing beta as a leading indicator of returns.
The returns to B/P are clear in the period from the early 1960s to 1999. But the strategy has not worked since 2007.
Ignore Information at Your Peril. A real value investor understands choosing an investment based on just one piece of information is dangerous. B/P, despite being called “value,” does not challenge the price because it leaves out information about value that this book directs you to. Return on book value, ROE introduces more information as chapter 2 and the P/B-ROE discussion on this web page show. More so a full residual earnings model introduced in chapter 3 and its application in subsequent chapters.
See Arnott, R., C. Harvey, V. Kalesnik, and J. Linnainmaa. 2021. Reports of value’s death may be greatly exaggerated. Financial Analysts Journal 77 (1), 44-67.