Beyond P/E Ratios: Using Book Value Formula to Identify Undervalued Stocks in February 2026

When searching for genuine investment opportunities, relying on a single metric often leads to blind spots. While earnings per share and revenue growth are important, the book value formula—which calculates the true net asset value of a company—provides a different lens for spotting stocks trading below their intrinsic worth. The price-to-book (P/B) ratio, derived from this foundational formula, remains one of the most underutilized yet powerful valuation tools for identifying companies with strong growth prospects at attractive prices.

Among the stocks that recently passed a rigorous value screening were Invesco (IVZ), Harmony Biosciences (HRMY), Concentrix (CNXC), Patria Investments Limited (PAX), and Global Payments (GPN)—all showing compelling combinations of low P/B ratios and strong earnings forecasts.

Understanding the Book Value Formula and Its Importance

What exactly is book value, and why should it matter to you? Book value represents the amount that would theoretically remain if a company liquidated all its assets and settled every liability today—essentially what shareholders would receive in such a scenario. This figure comes directly from the balance sheet by taking total assets and subtracting total liabilities.

The calculation is straightforward: Book Value = Total Assets − Total Liabilities

For most companies, this equals shareholder equity. However, intangible assets like goodwill or patents should typically be excluded to arrive at a more tangible, conservative figure. Understanding this book value formula is essential because it grounds valuation analysis in concrete asset backing rather than market sentiment alone.

The P/B ratio builds upon this by comparing market price to this underlying asset value:

P/B Ratio = Market Capitalization ÷ Book Value of Equity

This relationship illuminates whether the market is pricing in realistic assumptions about a company’s future or getting caught up in speculation.

Interpreting P/B Ratios: What the Numbers Actually Tell You

A P/B ratio below 1.0 traditionally signals that shares trade for less than their liquidation value—potentially an attractive entry point. Conversely, a ratio above 1.0 suggests the market has priced in growth expectations or intangible value.

However, context matters significantly. A low P/B sometimes indicates weak returns on assets or inflated asset values—red flags suggesting value destruction rather than value opportunity. Meanwhile, a high P/B might reflect takeover speculation or genuine competitive advantages that justify premium pricing.

The book value formula works best when compared against industry peers rather than evaluated in isolation. A manufacturing company or financial institution with substantial tangible assets benefits greatly from P/B analysis. Service companies or R&D-heavy tech firms, by contrast, may show misleading P/B readings since their most valuable assets (intellectual property, talent, innovation pipelines) don’t appear on balance sheets.

Smart investors combine the P/B ratio with complementary metrics—price-to-earnings (P/E), price-to-sales (P/S), and PEG ratios—to triangulate whether a stock genuinely offers value or merely appears cheap.

The Screening Framework: Five Criteria That Separate Winners From Duds

To identify stocks worthy of deeper analysis, value-focused investors typically apply these five filters:

1. Price-to-Book Below Industry Median: A depressed P/B relative to sector averages suggests room for multiple expansion.

2. Price-to-Sales Below Industry Median: This metric reveals how much the market pays for each dollar of revenue, with lower ratios indicating potential undervaluation.

3. Forward P/E Below Industry Median: Comparing estimated future earnings to current price provides forward-looking perspective on valuation.

4. PEG Ratio Less Than 1.0: This gauge connects the P/E ratio to projected earnings growth. A PEG below 1.0 means you’re paying less per unit of expected growth—the hallmark of a bargain.

5. Minimum Quality Thresholds: Stocks must trade above $5, show average 20-day volume exceeding 100,000 shares (ensuring liquidity), carry a Zacks Rank of #1 or #2 (indicating analyst conviction), and receive a Value Score of A or B (confirming valuation attractiveness).

These screening criteria collectively identify stocks where the book value formula and market price alignment suggests genuine opportunity.

Five Stocks Displaying Attractive Price-to-Book Characteristics

Invesco Ltd. (IVZ), headquartered in Atlanta, Georgia, operates as a diversified investment manager with Zacks Rank #1 status and a Value Score of B. The firm shows projected three-to-five-year EPS growth of 20.9%, indicating management confidence in operational expansion.

Harmony Biosciences (HRMY), based in Plymouth Meeting, Pennsylvania, develops therapies for rare neurological disorders. The company earned Zacks Rank #1 and Value Score A, with anticipated 3-5 year EPS growth of 27.11%—among the highest on this list.

Concentrix Corporation (CNXC), located in Newark, California, provides technology-enabled business services. Currently rated Zacks Rank #2 with Value Score A, it projects 3-5 year EPS growth of 8.76%.

Patria Investments Limited (PAX), domiciled in Grand Cayman, focuses on private markets investment across Latin America, offering exposure to private equity, infrastructure, and real estate. The firm maintains Zacks Rank #1 and Value Score A, with projected 3-5 year EPS growth of 15.39%.

Global Payments Inc. (GPN), headquartered in Atlanta, leads payment technology and software provisioning to merchants, financial institutions, and consumers globally. It carries Zacks Rank #2 and Value Score A, with 3-5 year EPS growth projected at 11.54%.

Why This Approach to Value Investing Matters

The book value formula and its derivative P/B ratio have consistently enabled disciplined investors to outpace broad market returns. Since 2000, systematic value-focused strategies have delivered average annual gains of 48.4%, 50.2%, and 56.7%—substantially exceeding the S&P 500’s long-term 7.7% annual appreciation.

Success in value investing depends on rigorous application of multiple metrics, not reliance on any single number. The book value formula anchors analysis in balance sheet reality, the P/B ratio contextualizes that reality against market prices, and complementary metrics like P/E and PEG ratios provide forward-looking dimension. Combined with quality screens ensuring liquidity and analyst backing, this multi-factor approach identifies companies where current prices underestimate sustainable value creation potential.

Information sourced from Zacks Investment Research analysis.