Nominal Value of Shares: Understanding the Three Pillars of Stock Valuation

When facing an investment decision, we are surrounded by different methods to analyze whether a stock is expensive or cheap. However, many investors confuse fundamental concepts that, although they sound similar, provide completely different information. This article breaks down three key approaches: nominal value, book value, and market value, showing you when to apply each and why none is complete on its own.

The Central Role of Nominal Value: The Starting Point

Every stock has a mathematical origin. The nominal value is precisely that: the result of dividing a company’s share capital by the total number of shares issued. Although it seems simple, this calculation establishes the initial reference point from which any analysis begins.

Let’s consider a practical example. If BUBETA S.A. has a share capital of €6,500,000 and issues 500,000 shares at its IPO, the calculation is straightforward:

Nominal Value = €6,500,000 ÷ 500,000 shares = €13 per share

This nominal value represents the theoretical price at which the company issues its shares to the market. In equities, however, you rarely hear about it again. The nominal value becomes more relevant in convertible bonds, where a known conversion price is set in advance to serve as a future reference.

The main limitation? Its validity is fleeting. Once the stock begins trading, the market quickly sets other prices, leaving the nominal value as a historical data point with limited operational utility.

The Book Value: What Accounting Really Tells Us

While the nominal value is static, the (book value) or net book value provides a dynamic snapshot of the company’s financial health. It is calculated by subtracting total liabilities from total assets, then dividing the result by the number of shares issued.

Take the example of MOYOTO S.A.:

• Assets: €7,500,000
• Liabilities: €2,410,000
• Shares issued: 580,000

Net Book Value = ((€7,500,000 - €2,410,000)) ÷ 580,000 = €8.78 per share

This value is fundamental for value investors. Warren Buffett and his followers use the book value to identify companies where the market price deviates significantly from what the accounting books indicate. The logic is simple: if the trading price is below the book value, you may have found a bargain.

Comparing the Price/Book ratio between two similar companies can reveal which one is more undervalued. For example, if Enagas shows a P/B lower than Naturgy, it suggests Enagas is trading at a greater discount relative to its book value.

However, the book value has important weaknesses. Tech companies and small caps often show anomalies because they hold significant intangible assets that traditional accounting does not properly capture. Additionally, creative accounting (manipulations within the legal framework) can distort this value.

Market Value: Where Expectations and Reality Converge

This is what you see on your screen every day: the price at which a stock is bought and sold. Market value is obtained by dividing the market capitalization by the number of outstanding shares.

If OCSOB S.A. has a market cap of €6.94 billion with 3,020,000 shares issued:

Market Value = €6,940,000,000 ÷ 3,020,000 = €2,298 per share

Unlike the previous values, the market price is dynamic, volatile, and reflects future expectations. It incorporates analyst analyses, investor sentiment, macroeconomic changes, and speculation. An announcement of expansionary monetary policy can revalue stocks without any fundamental change in the company. Similarly, negative news in the sector can trigger irrational declines.

Market value tells you (the current price), but not whether it is expensive or cheap. For that, you need complementary ratios like the P/E, P/B, or rigorous fundamental analysis.

How to Use Each Value in Your Investment Strategy

Application of Nominal Value: Its practical use is limited in stocks but becomes important in instruments with fixed maturity dates. If you invest in convertible bonds, the predefined conversion price acts as a reference nominal value that determines how many shares you will receive at maturity.

Application of Book Value: Value investors use it for two purposes: to identify companies with solid balance sheets and to detect cases where the price is discounted relative to what the accounting justifies. If a company has a robust balance sheet but trades at a low P/B, it may represent an opportunity.

Application of Market Value: This is your daily operational tool. Set your buy orders with limits, your take-profits on sales, and your stop-losses on short positions. Markets have specific hours: the IBEX 35 and European exchanges open at 09:00 and close at 17:30 (Spanish time); the US market from 15:30 to 22:00; Japan from 02:00 to 08:00.

A practical example: after a significant drop, META PLATFORMS closes at $113.02. Expecting further weakness, you place a limit buy order at $109.00. If the next day the price rebounds without reaching that level, your order is not executed. It only executes if the market actually falls below your limit.

Limitations You Cannot Ignore

Each method has blind spots. The nominal value is outdated: it provides historical information with no operational relevance. The book value fails when companies hold significant intangible assets (technology, brand, talent) that are not properly reflected in the books, and is vulnerable to accounting manipulations.

Market value suffers from radical indeterminacy. It is influenced by factors unrelated to fundamentals: interest rate cycles, sector euphoria, changes in economic outlooks, or simply speculative momentum. It can overinterpret positive data and minimize negative ones, distorting financial reality.

Comparative Reference Table

Conclusion: Integrate the Three Approaches

None of these three values is the absolute truth. The nominal value is contextual, the book value is partial, and the market value is speculative. A sophisticated investor uses them together: reviews the market price for trading, consults the book value to verify that the company has solid fundamentals, and remembers the nominal value only as a historical context.

The key is to interpret each figure within the correct context. It’s not enough to look at a P/B ratio in isolation; you need to consider industry, business model, economic prospects, and technical analysis. Investing is a process of synthesis, not superficial reading of individual indicators.