Hi guys! I just read the following paragraph from a CFA book:
“ The price-to-book ratio, which is also referred to as the market-to-book ratio, provides an indication of investors’ expectations about a company’s future investment and cash flow-generating opportunities. The larger the price-to-book ratio (i.e., the greater the divergence between market value per share and book value per share), the more favorably investors will view the company’s future investment opportunities.”
I don’t understand the logic behind it. Why higher P/B ratio means better investment opportunities? Aren’t we looking for lower or even below 1 P/B ratios?