Three ways to view the value of a stock: which one to choose based on your strategy

When trading on the stock market, we face a constant question: what is a stock truly worth? The answer is not unique. There are three completely different perspectives to value an asset, and each tells a different story about the same company. In this analysis, we delve into how they work, when to apply them, and why choosing one over another can be decisive in your investment decisions.

Three metrics, three realities

Nominal value: the forgotten starting point

It all begins with the nominal value. It’s calculated simply: take a company’s share capital and divide it by the total number of shares issued. Although it seems basic, it represents the theoretical initial price at which each share is issued.

Let’s imagine a company going public with a share capital of €6,500,000 and issuing 500,000 shares. The nominal value would be €13 per share. Simple, but here’s the problem: once the share starts trading, the nominal value loses relevance almost immediately. It serves more as a historical reference than a daily analysis tool. Its true importance emerges in fixed-income instruments like convertible bonds, where that predetermined nominal value is used to exchange the investment for shares in the future.

Book value: what accounting says

This is where it gets interesting for those practicing value investing, the investment approach popularized by Warren Buffett under the motto “buy good companies at a good price.” The net book value is obtained by subtracting liabilities from total assets, and dividing the result by the number of shares issued.

Let’s take an example: a company with assets of €7,500,000, liabilities of €2,410,000, and 580,000 shares issued. The net book value would be (7,500,000 - 2,410,000) ÷ 580,000 = €8.78 per share. This number reveals what the company should theoretically be worth according to its accounting books. It’s particularly useful for identifying companies that may be undervalued or overvalued in the market.

But there are important limitations. The book value works well for traditional companies with clear tangible assets, but it creates significant inefficiencies when valuing tech firms or small caps with substantial intangible assets. Additionally, creative accounting—those legal but questionable accounting practices—can distort these numbers.

Market value: what the market decides today

Finally, there is the market value—the price you see on your screen every time you open a trading platform. It’s calculated by dividing the company’s market capitalization by the number of shares issued. If a company has a market cap of €6.94 billion and 3,020,000 shares outstanding, the market value is €2.30 per share.

This is the number that truly matters when you buy or sell. It represents the instant consensus between buyers and sellers, reflecting not only the company’s fundamentals but also future expectations, market sentiment, and macroeconomic factors.

How to use them in practice

Compare to find opportunities

A value investor faces a simple but powerful decision: is this stock cheap or expensive relative to its book value? Here, the Price/Book ratio (P/VC) comes into play. Suppose you need to choose between two companies in the energy sector. The first has a P/VC of 0.85, while the second trades at 1.20. Instantly, you know the first is cheaper in terms of book value—a potential sign of undervaluation.

However, a crucial warning: a low ratio does not guarantee a good investment. It must be combined with solid fundamental analysis, evaluation of the business model, balance sheet quality, and sector outlook.

Daily trading with market value

In day trading, the market value is your compass. If you see META PLATFORMS drop from $115 to $113 and think it will continue falling, you can set a limit buy order at $109 that will execute only if the price reaches that level. Here, the nominal value and book value don’t matter—only the real-time price and your expectations of future movements.

Remember that trading hours vary by market. European exchanges operate from 9:00 to 17:30 (Spanish time), while New York opens at 15:30 and closes at 22:00. Outside these hours, you can only place pre-set orders.

Limitations you cannot ignore

Nominal value: Its biggest weakness is obsolescence. Once issued, the nominal value is mainly historical. In equities, it has little practical use.

Book value: It systematically fails with tech companies, startups, and firms with significant intangible assets. A startup valued in billions but with modest book assets will show an astronomically high P/VC, which can be perfectly normal. Also, creative accounting—though irregular—can distort these numbers.

Market value: It is deeply volatile and irrational in the short term. An announcement about interest rate policy can plummet or spike the price regardless of the company’s operational reality. Sector euphoria, changes in macroeconomic expectations, or even speculative momentum can cause the market value to diverge completely from fundamentals.

Summary: when to trust each measure

Nominal value is mainly a historical data point, useful in very specific contexts like convertible bonds. Book value provides insight into whether the market is paying above or below what the books suggest—valuable for fundamental analysis but insufficient on its own. Market value is your daily operational reference—the actual price at which you buy and sell—but it clearly does not indicate whether that price is fair or speculative.

The key is not to rely on a single metric. The best investors combine these three perspectives with technical, fundamental, and contextual analysis. The nominal value shows where they came from, the book value reveals what it should be worth according to the books, and the market value shows what the market is willing to pay today. Using all three, understanding their limitations, is what separates disciplined traders from those making impulsive decisions.