Understand the meaning: What is the nominal value, the book value, and the market value of stocks?

An action can be evaluated from multiple perspectives, each revealing different information about its true potential. Understanding the difference between these three valuation methods is essential for making informed investment decisions. In this comprehensive guide, we will explore the nominal value, book value, and market value, analyzing their sources of calculation, what each represents, when to apply them, and their limitations.

The three pillars of valuation: Fundamental concepts

Before diving into the details, it is important to recognize that each method answers a different question: the nominal value tells us the initial price, the book value shows what accounting states, and the market value reflects what investors are willing to pay at this moment.

① How they are calculated: Sources of information

Each valuation method uses different data, and mastering these sources is key to applying them correctly in your investment analysis.

Nominal value: The starting point

The nominal value of a share is obtained by dividing the company’s share capital by the total number of shares issued. This formula, although simple, sets the reference price from which all shares begin.

To illustrate, imagine a company called BUBETA S.A. with a share capital of €6,500,000 and issuing 500,000 shares at its stock market debut. Applying the calculation:

Nominal Value = Share Capital / Number of Shares = €6,500,000 / 500,000 = €13

In this case, each share would have a nominal value of €13. This concept remains relevant in contexts such as convertible bonds, where a predefined redemption price is set based on references similar to the nominal value.

Book value: What the books say

The book value (or net book value) is calculated by taking the difference between total assets and total liabilities of a company, then dividing this result by the number of shares issued. This metric reflects the value attributable to each share according to the balance sheet.

Consider the example of MOYOTO S.A., a company with assets worth €7,500,000, liabilities of €2,410,000, and 580,000 shares issued:

Book Value = (Assets - Liabilities) / Number of Shares = (€7,500,000 - €2,410,000) / 580,000 = €8.775

This means that, according to its accounting, each share should be worth €8.775, representing the proportion of net equity attributable to each share.

Market value: The real-time price

Market value is determined by dividing the company’s market capitalization by its outstanding shares. This is the price you see on the screen when checking quotes, resulting from the interaction between buyers and sellers.

Take the example of OCSOB S.A., with a market capitalization of €6.940 billion and 3,020,000 shares issued:

Market Value = Market Capitalization / Number of Shares = €6,940,000,000 / 3,020,000 = €2,298

This price reflects the collective valuation of the market at a specific moment, incorporating expectations, sentiment, and analysis from thousands of participants.

② What information each valuation provides us

The true usefulness of these methods lies in interpreting them correctly according to what each one represents.

The nominal value and its limited application

The nominal value indicates the initial issuance price of a share. Its informational value is mainly historical, as it marks the starting point but does not evolve with the company. In equities, it has little practical use, although in fixed income (bonds, notes) it remains fundamental because it coincides with the amount to be repaid at maturity.

The book value as a tool for in-depth analysis

This value is especially valuable for those practicing value investing, the strategy popularized by major investors seeking to “buy good companies at a good price.” The book value reveals the company’s actual equity according to its records.

When comparing the market price with the book value through the P/B ratio (Price / Book Value), you can identify if a stock is overvalued or undervalued relative to its accounting situation. A low ratio suggests the market is pricing the company below its book value, which could indicate an investment opportunity.

However, this method has significant limitations. In technology or small-cap companies, where intangible assets (patents, brand, know-how) represent most of the value, traditional balance sheets do not capture the true economic reality.

The market value: Operational reality

Market value is the actual price at which you buy or sell shares. It does not tell you if it is expensive or cheap—only what the market has set at this moment. To determine if the price is attractive, you need to apply other complementary indicators such as the PER (Price Earnings Ratio), fundamental or technical analysis.

③ Practical applications in your investment strategy

Using the nominal value: Specific cases

The nominal value has limited application in equities. Its relevance increases in instruments like convertible bonds, where a predefined conversion price is set. For example, in a convertible bond issuance, the redemption price could be set as a percentage of the average share price over a specific period, functioning as a reference nominal value.

Applying the book value in stock selection

Value investing uses the book value as an initial filter. The strategy is: look for companies with solid balance sheets, robust business models, and a market price below what their accounting justifies.

To illustrate, imagine you want to invest in a gas company listed on a European stock exchange. Comparing two main competitors using the P/B ratio:

• Company A: P/B = 0.85 (trades at 85% of its book value)
• Company B: P/B = 1.20 (trades at 120% of its book value)

Company A presents a better opportunity according to this criterion, although this should never be the sole decisive factor. Other variables such as profitability, debt levels, dividend prospects, and competitive position should be considered together.

The market value in daily operations

This is your constant reference point. The market price fluctuates according to the volume of buy and sell orders. If demand exceeds supply, the price rises; if sell orders dominate, it falls.

As an investor, you use the market value to:

• Place your buy or sell orders
• Set profit targets (take-profit)
• Define stop-loss limits (stop-loss)
• Take advantage of dips with limit orders

For example, if a stock trading at €113 experiences a sharp correction and you believe it could fall further, you might set a limit buy order at €109. This order will only execute if the price reaches that level, allowing you to capitalize on weakness without being tied to the screen.

Remember that trading hours vary by market: European exchanges typically operate from 09:00 to 17:30 hours (Spanish time), while markets like the US or Asia have their own schedules.

④ The limitations of each method: Disadvantages to consider

No method is perfect, and understanding their weaknesses is crucial to avoid mistakes.

Limitations of the nominal value

Its main weakness is its rapid obsolescence. The nominal value quickly loses relevance after the initial issuance and does not reflect how the company has evolved. In modern equities, it is rarely used beyond very specific contexts.

Limitations of the book value

This method is especially inefficient with small companies (small caps) or those with a high proportion of intangible assets. Additionally, there is a risk of “creative accounting”—legal accounting manipulations that distort reality without violating standards. A company could present an attractive book value while its actual economic situation is much worse.

Limitations of market value

Market price is heavily influenced by factors that have little to do with the company’s operational reality:

• Monetary policy: An announcement of aggressive interest rate hikes can push the price down, even if the company’s fundamentals remain unchanged.
• Sector events: A relevant event in the industry (regulation, competition, crisis) affects the entire industry without discrimination between strong and weak companies.
• Economic cycles: Changes in macroeconomic expectations alter valuations regardless of individual performance.
• Speculative euphoria: Entire sectors often experience irrational revaluations driven more by sentiment than data.

Market value can discount or overinterpret information, creating significant divergences between the price and the underlying economic reality.

⑤ Comparative table: Quick reference

⑥ Conclusion: Integrating methods

True mastery in investing does not lie in choosing a single method but in using them complementarily according to the context. The nominal value provides the historical reference, the book value offers the fundamental anchor, and the market value reflects the current operational reality.

The key is to interpret each metric within the overall picture: a low market price relative to the book value can indicate an opportunity, but only if the company maintains a solid balance sheet and growth prospects. Similarly, an attractive book value is irrelevant if the company operates in a declining sector or faces regulatory pressures.

Investing requires a multidimensional analysis. It is not enough to read a ratio or an article. Information must be processed considering multiple perspectives, sources, and contexts to make solid and consistent decisions over time.