Three ways to value a stock: nominal, accounting, and market

When you decide to invest in stocks, you face an uncomfortable question: what is the true value of that company? The answer is not unique. There are three different methods to calculate the nominal value of shares, each telling a different story about what you are buying.

Where do we start? What you need to know about each method

Imagine you have three mirrors in front of you. The first shows who you were at birth, the second tells you what you have in your pocket right now, and the third reflects how others see you on the street. That’s how the three types of stock valuation work: the nominal value of shares, the book value, and the market value.

Each uses completely different sources of information, and that determines what result you get. It’s not the same to sum numbers from a balance sheet as to observe what someone is paying on the market for your share.

The nominal value: the starting point that almost no one uses

Let’s start with the simplest. The nominal value of shares comes from a basic mathematical operation: you take the company’s share capital and divide it by the total number of shares issued.

Real example: BUBETA S.A. has a share capital of €6,500,000 and issues 500,000 shares. The calculation is straightforward: 6,500,000 ÷ 500,000 = €13 per share.

What does this tell us? That when the company went public, it set an initial reference of €13 per share. Nothing more.

The problem is that the nominal value of shares quickly loses relevance. In equity trading, it is rarely used because shares have no expiration date. However, in fixed income (bonds and debt securities), this value remains important until maturity.

An interesting exception is convertible bonds. These securities allow exchanging the bond for shares at a pre-set price. That price acts as a “nominal” reference value, although it is calculated specifically for each issuance.

The book value: what accounting says about your investment

Here things get a bit more complicated, but it’s worth understanding. The net book value takes the company’s assets, subtracts liabilities, and divides the result by the number of shares.

Example: MOYOTO S.A. has assets of €7,500,000, liabilities of €2,410,000, and 580,000 shares issued.
Calculation: (7,500,000 - 2,410,000) ÷ 580,000 = €8.78 per share.

What does this mean? That according to its accounting books, each share represents €8.78 in the net value of the company.

This method is the favorite of value investors. The strategy is simple: look for companies with a solid balance sheet and good business model, but trading below what their accounting suggests. If the market price is well below the net book value, the share may be undervalued.

Practical application: Let’s compare two Spanish gas companies. If one has a Price/Book ratio lower than the other, it means it is cheaper relative to what its balance sheet indicates it should be worth.

But beware: this method has serious limitations. Tech companies and small businesses can distort this calculation because their most valuable assets are intangible (patents, software, brands). Additionally, there are “accounting tricks” that can manipulate the balance sheet.

The market value: what you actually pay in reality

Market value is the price at which you buy or sell a share right now on the stock exchange. It is calculated by dividing the market capitalization by the number of shares issued.

Example: OCSOB S.A. has a market capitalization of €6.94 billion and 3,020,000 shares issued.
Calculation: 6,940,000,000 ÷ 3,020,000 = €2,298 per share.

This is the price you see on your trading platform. It results from the daily confrontation between buyers and sellers. A torrent of buy orders pushes the price up; a torrent of sell orders pushes it down.

The fundamental difference with the other two methods is that market value does not tell you whether the share is expensive or cheap. It only shows the price. To know if it’s a good buy, you need to apply other indicators like the PER, P/BV, or conduct a thorough fundamental analysis.

How to use each method in your investment strategy

The nominal value: rarely relevant, but there are exceptions

In daily trading, it is practically useless. Its only real application is in convertible bonds, where it acts as a predetermined redemption price.

The book value: the compass of the value investor

If you apply a value investing strategy, this method is fundamental. The logic is:

• If the company has a good balance sheet but trades high, don’t invest
• If the company trades low but has a weak balance sheet, don’t invest either
• If it has a good balance sheet and the price is below what its book value suggests, then you do invest

The Price/Book ratio allows you to quickly compare the attractiveness of different stocks within the same sector. A company with a low P/BV is more undervalued in accounting terms than one with a high P/BV.

But remember: this ratio is not the absolute truth. It should be combined with many other analysis factors.

The market value: your daily operational compass

It’s what you constantly see on your screen. Trading hours vary by market:

• Spain and Europe: 09:00 to 17:30
• United States: 15:30 to 22:00
• Japan: 02:00 to 08:00
• China: 03:30 to 09:30

Outside these hours, you can only place pre-set orders.

Use case: If META PLATFORMS drops to $113.02 and you believe it could go lower, set a buy limit order at $109.00. The order will only execute if the market brings the price down to that level.

The traps of each method: what limitations do they hide?

Nominal value: It is almost historical. Except in fixed income or convertible bonds, it does not provide useful information for investment decisions.

Book value: Fails miserably with small companies and tech firms. It is also vulnerable to accounting manipulations. Moreover, it does not capture the value of intangible assets that can be enormously valuable.

Market value: It is deeply unstable. Driven by noise, expectations, macroeconomic news, monetary policy changes, sector sentiment, and even trends. Frequently, the price spikes or crashes without real fundamental backing. It can reflect irrational euphoria or unjustified panic.

Reality: you need all three, but in different ways

It’s not about choosing one and discarding the others. The nominal value of shares provides historical context. The book value helps identify opportunities. The market value is your operational tool.

Serious investing combines these methods. You look for companies where the book value suggests potential (good companies), then wait for the market value to fall irrationally (good price), and then act.

But none of these methods is sufficient on its own. True mastery lies in understanding what each tells you, when to trust each signal, and how to interpret them together within the context you are analyzing.