The investment logic behind the net asset value per share formula: using an indicator to see through the true value of stocks

What is Net Asset Value per Share? Why Is It So Important?

Net Asset Value per Share (NAVPS) represents the net asset value contained in each share. Simply put, if you buy a stock, this tells you how much actual assets the share represents.

From an accounting perspective, the NAVPS formula is straightforward:

NAVPS = (Total Assets - Total Liabilities) / Total Outstanding Shares

Or understood from another angle:

NAVPS = (Share Capital + Capital Surplus + Retained Earnings + Undistributed Profits) / Total Outstanding Shares

For example, if Uni-President (1216.TW) has assets of 2.5 billion, liabilities of 1 billion, and 1 billion shares outstanding, then NAVPS = (2.5B - 1B) ÷ 1B = 1.5 NT dollars. It looks simple, but this number hides the key to stock selection.

Is a Higher NAVPS Better? Don’t Be Fooled by This Misconception

This is the most common pitfall. Many novice investors see a high NAVPS and jump in, only to get stuck. Why? Because a high NAVPS does not necessarily mean the stock price will rise.

NAVPS reflects the size of the company’s existing assets, while the stock price is determined by future earning potential. They seem related, but in reality, they are not directly positively correlated.

A company that loses money every year will see its assets decrease, and thus NAVPS will fall; but conversely, an increasing NAVPS does not guarantee a rising stock price. Stock prices are also influenced by profitability, industry outlook, investor expectations, and other factors.

Even more tricky is that changes in NAVPS may result from two reasons:

• Changes in company operations: this is what you should focus on
• Issuance of new shares or stock dividends: this mechanically alters NAVPS but does not reflect real operational performance

Therefore, relying solely on NAVPS for stock selection is insufficient, especially for tech and internet companies that mainly rely on intangible assets. Companies like TSMC, NVIDIA, and Microsoft may not have the highest NAVPS, but their stock prices soar because investors focus on their technological barriers and future cash flows.

For real assets-heavy industries like real estate and manufacturing, NAVPS is more meaningful because their value mainly resides in tangible assets.

Price-to-Book Ratio (PBR) Is the Correct Way to Pick Stocks

Instead of obsessing over the absolute NAVPS, it’s better to look at the Price-to-Book Ratio (PBR):

PBR = Market Price per Share / NAVPS

This ratio tells you how much the market is willing to pay for each dollar of the company’s net assets. The lower the ratio, the cheaper the stock relative to its book value.

For example, if a stock’s PBR has historically fluctuated between 1.6x and 2.5x, and suddenly drops to 1.4x, it might be a buying opportunity. But the key is to compare within the same industry, because PBR standards vary greatly across sectors.

Here are some quality stocks with relatively low PBR for reference:

Taiwan Stock Market Examples

• TSMC (2330): PBR about 4.29x — global leading foundry, technology leader, stable earnings
• Formosa Plastics (6505): PBR about 2.45x — Taiwan’s largest plastics manufacturer, strong supply capacity
• Taiwan Mobile (3045): PBR about 3.29x — leading telecom provider, broad customer base

US Stock Market Examples

• JPMorgan Chase (JPM): PBR about 1.94x — largest global financial services firm, worldwide operations
• Ford Motor (F): PBR about 1.19x — well-known automaker, but watch for industry cycles
• General Electric (GE): PBR about 0.70x — diversified industrial conglomerate, but investigate reasons behind low PBR

Note: A low PBR does not automatically mean a stock is worth buying; you must also consider financial health, industry conditions, competitive advantages, etc. Sometimes, a declining PBR can be a warning sign.

The True Role of NAVPS in Investing

1. Assessing whether a stock is reasonably valued

Compare the stock price to NAVPS over time for the same company. If the stock price is many times higher than NAVPS, it might be overvalued; if lower, it could be undervalued. For example, even if Master Kong and Uni-President have similar stock prices, the one with higher NAVPS indicates better operational health and lower risk.

2. Evaluating company financial stability

NAVPS reflects the company’s tangible assets. A higher NAVPS indicates a stronger financial foundation and better risk resistance. This is especially important for long-term value investors.

3. Estimating liquidation value in bankruptcy

In theory, if a company goes bankrupt and liquidates, each shareholder’s residual value is based on NAVPS (though actual liquidation values can differ due to depreciation, asset liquidity, etc.).

NAVPS vs Earnings per Share (EPS): Which to Use for Stock Selection?

Earnings per Share (EPS) is net profit divided by the number of shares, reflecting profitability.

These are two different metrics:

• NAVPS focuses on asset size → suitable for value investing and finding undervalued stocks
• EPS focuses on earning ability → suitable for growth investing and identifying high-growth potential

In practice:

• A company with substantial assets (high NAVPS) but poor management (low EPS) indicates poor asset quality
• Conversely, a company with low NAVPS but strong profitability (high EPS) is more attractive

Top investors often combine both: use PBR to find undervalued stocks, EPS to assess growth potential, and P/E ratio for comprehensive judgment.

How to Find Data for NAVPS Calculation

Method 1: Direct lookup

Most stock websites and trading platforms provide NAVPS directly; just enter the stock code.

Method 2: Manual calculation

Download annual reports from the company’s official website, find total assets, total liabilities, and outstanding shares, then apply the formula. For example, for Uni-President, based on 2021 financials:
NAVPS = (414,655,454 - 254,606,345) / 56,820,154 ≈ 2.8 NT dollars.

Core Advice: Don’t Be Fooled by a Single Indicator

While the NAVPS formula is simple, using it effectively for stock selection requires understanding its limitations:

✓ Suitable for analyzing the value of asset-heavy companies
✓ Useful as a peer comparison within the same industry
✓ Good for assessing financial stability
✗ Not suitable for evaluating tech or service companies’ value alone
✗ Not suitable for predicting future stock price movements
✗ Should not be the sole basis for stock selection

True investing mastery involves combining NAVPS, P/E ratio, cash flow, ROE, and other indicators, along with deep understanding of the company and industry. Only then can you avoid the trap of “high NAVPS = good stock” and find genuinely undervalued investment opportunities.