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Understanding ArcelorMittal’s Price-to-Book Value Ratio among Peers

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Sep. 11 2017, Published 11:49 a.m. ET

The PB ratio

There are several metrics to value a business, and the PB (price-to-book-value) ratio is one of the most basic methods. The PB ratio tells us how a company is valued in comparison to its book value.

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Comparative analysis

ArcelorMittal (MT) has the lowest PB ratio in our select group of steel stocks (CLF) at 0.8x based on its 2017 consensus estimates, while AK Steel has the highest PB ratio for 2017 at 10.4x.

U.S. Steel (X) has a PB ratio of 1.9x for 2017 and 1.6x for 2018. Nucor’s (NUE) PB ratio is 1.98x based on its 2017 consensus estimates, while Steel Dynamics’ 2017 consensus PB ratio is 2.46.

What these numbers mean

Analysts see a PB ratio of less than 1.0x as a sign of a stock’s undervaluation. As such, ArcelorMittal looks undervalued, while AK Steel (AKS) looks quite expensive. But we can’t always draw such simplistic conclusions.

For instance, AK Steel has negative shareholder equity due to accumulated losses. While AK Steel’s book value per share is expected to rise, its book value is now negative.

Although PB ratios provide us some insight into a company’s valuation, it’s important to read them in conjunction with other ratios—especially those related to income statements.

In the next part, we’ll do a comparative analysis of steel companies’ PS (price-to-sales) ratios.

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