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Tangible Book Value (TBV) is essentially the asset value or net worth of a company. As Jamie Dimon, the CEO and Chairman of JPMorgan Chase & Co., once said: “…We believe tangible book value per share is a good measure of the value we have created for our shareholders.”

The Price-to-Tangible Book Value ratio (P/TBV) is a common measure used to value bank stocks. It tells one how much investors are willing to pay for each dollar of a bank´s TBV. A ratio above 1 (below 1) means the market thinks the bank is worth more (less) than its net tangible assets.

Using TBV in the denominator rather than Book Value (BV) is considered a more conservative metric, as it uses only the hard or real assets of banks. The P/TBV ratio will always be at least as high as the P/BV ratio. Book Value is another word for Equity (Assets minus Liabilities), so TBV refers to tangible equity. 

Both ratios can be utilized to determine if the current bank stock price is over- or undervalued relative to TBV or BV. A lower ratio can be interpreted as if the market price of the shares of the underlying bank is potentially trading at a discount to its TBV or BV. If so, then the share price might be relatively cheap.

The weekly chart below shows the non-dividend-adjusted share price of Iceland´s Kvika banki. The curved trendlines offer a possible future path for the stock price. In the lower window, the P/TBV multiple or ratio utilizing market price and TBV on a per-share basis is shown, as well as a purple moving average of the multiple.

At the beginning of May 2024, the multiple reached its historical low point (at about 1.1) and began to rise with the stock price from mid-year 2024. Recently the price of the stock found resistance in the 21 ISK per share area; it is still up more than 50% since its November 2023 low. At the end of last year, the P/TBV ratio hit 1.5 and for the past 2-3 weeks the multiple has been falling with the stock price and is currently trading at 1.38 times its TBV.

I am keeping a close eye on whether the multiple will hold its moving average line or decline convincingly below it, which would then possibly indicate further weakness ahead for the price of the shares. It is worth mentioning that the TBV per share figure for the Icelandic bank was 14.5 in December 2024 and has been steadily rising for the last five quarters.

Share Price of Kvika banki – Weekly Chart

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