5 Undervalued Stocks Trading Below Book Value: A Value Investor's Opportunity at Year-End 2025

When hunting for undervalued stocks, most investors focus on the price-to-earnings (P/E) ratio. However, as 2025 winds down, savvy value hunters are turning their attention to another metric that often gets overlooked: the price-to-book (P/B) ratio. This valuation tool can reveal hidden gems trading at a discount to their actual assets.

Why P/B Ratio Matters More Than You Think

The P/B ratio compares a company’s market capitalization to its book value of equity—essentially answering one critical question: are you paying less for a dollar of assets than what the market values it at?

Unlike the P/E ratio, which struggles with loss-making companies, the P/B ratio works across different sectors and business models. A P/B ratio below 1.0 signals that a stock is trading below what it would theoretically fetch in liquidation, making it potentially undervalued. However, this isn’t a buy signal in isolation—you need to dig deeper into why the market is pricing it so cheaply.

Understanding Book Value: What It Really Means

Book value represents the liquidation value of a company: assets minus liabilities, divided by shares outstanding. Think of it as what shareholders would theoretically receive if the company sold everything tomorrow and paid off debts.

The catch? Book value can be misleading. Intangible assets like brand value or R&D are often overstated on balance sheets, while service companies or tech firms with heavy R&D spending may have artificially inflated book values. This is why comparing P/B ratios within the same industry is crucial—a bank’s P/B looks different from a software company’s.

The Screening Criteria That Separates Winners From Losers

Finding the right low P/B stock requires more than just spotting a low number. Here’s what separates the opportunities from the traps:

Low P/B vs. Industry Average: A P/B below the industry median suggests pricing power and upside potential.

P/E Ratio Matters: Just because P/B is low doesn’t mean the P/E ratio isn’t inflated. Screening for below-median P/E ratios (forward estimates) ensures earnings justify the valuation.

Price-to-Sales Efficiency: A lower P/S ratio confirms the company isn’t just cheap on assets—it’s also selling efficiently relative to market expectations.

Trading Liquidity: Stocks trading below $5 or with minimal volume are traps. Minimum daily volume of 100,000 shares ensures you can actually exit your position.

Growth Prospects: A PEG ratio under 1.0 (P/E divided by growth rate) confirms you’re not buying a value trap—actual earnings growth supports the low valuation.

5 Stocks Hitting the Sweet Spot

The AES Corporation (AES) generates power across 14 countries on four continents. The utility plays features a 3-5 year EPS growth projection of 11.2%, backed by consistent cash flow generation from regulated assets.

BorgWarner (BWA) manufactures critical components for the automotive transition: transfer cases for traditional vehicles and powertrains for hybrids and EVs. With projected EPS growth of 10.2% over the next 3-5 years, it’s positioned at the intersection of old and new automotive tech.

EnerSys (ENS) produces industrial batteries serving diverse markets from telecommunications to material handling. The company projects 15.0% EPS growth and benefits from secular trends in energy storage and electrification.

PG&E Corporation (PCG) operates as California’s largest regulated utility through its Pacific Gas and Electric subsidiary. The company’s 15.9% projected 3-5 year EPS growth reflects rate recovery and infrastructure modernization investments in a capital-intensive but stable business.

Keros Therapeutics (KROS) represents the higher-growth option: a clinical-stage biotech developing treatments for blood and bone disorders. With a 36.5% projected EPS growth rate, it’s the highest-upside candidate—and highest-risk.

The Real Value Investing Lesson

The P/B ratio alone won’t make you money. The key is using it as a screening tool to identify sectors and companies where assets trade at a discount, then validating with other metrics like P/E ratio comparisons and growth expectations. Value investing rewards patience and discipline—look for companies where multiple tailwinds (regulatory, cyclical, or structural) are aligning, not just cheap price tags.

The five stocks above passed rigorous screening criteria precisely because they combine low P/B ratios with reasonable earnings multiples and credible growth prospects. That combination doesn’t emerge often, which is why it deserves serious consideration as the market transitions into 2026.