Three ways to interpret the price of a stock: beyond the face value

How many ways are there to analyze a stock? More than you probably think. When we talk about nominal value of a share, many investors believe it’s the only thing that matters, but the reality is much more complex. There are three fundamental perspectives that every trader must master: the historical starting point, the accounting reality, and what the market actually pays. Each one tells a different story about the same company.

What you should know before trading

Before executing any order on your trading platform, it is essential to understand where each figure on your screen comes from. Not all valuations are calculated the same, nor are they all useful for the same purpose. A company may seem expensive based on market value but cheap according to accounting criteria. Another may maintain a nominal value of a share that has nothing to do with its current price.

The starting point: how the nominal value is determined

When a company goes public, it begins with a reference price calculated simply: the share capital divided by the total number of shares issued. This is the foundational value, the zero point from which everything begins.

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

However, this nominal value of a share has a limited validity. Once the company trades on the secondary market, its relevance diminishes significantly. Its main utility appears in specific contexts such as convertible bonds, where a predetermined conversion price is set as a contractual reference. In those fixed-income convertible instruments, the issuer establishes a particular formula (for example, a percentage of the average price over a certain period) that functions as a future exchange value.

In traditional equity, this first indicator is rarely used after the IPO, as the market quickly discards it in favor of more dynamic metrics.

Reading the balance sheet: the book value in action

There is another completely different approach: analyzing what the company owns versus what it owes. If you subtract liabilities from assets and divide by the number of shares, you get the net book value. This number reveals what accounting says each share “is worth” according to the balance sheet.

Example: MOYOTO S.A. reports assets of €7,500,000, liabilities of €2,410,000, with 580,000 shares outstanding. The operation: (7,500,000 - 2,410,000) ÷ 580,000 = €8.78 per share in accounting terms.

This method is favored by investors practicing value investing, the approach where the goal is to buy solid companies at attractive prices. The reasoning is simple: if the market price is below the book value (low P/B ratio), there may be an opportunity. If it’s well above, there’s probably overvaluation.

Real-world application: Let’s compare two gas companies in the IBEX 35. ENAGAS trades with a lower P/B ratio than NATURGY, suggesting it is less expensive relative to its book value. For a value investor, this represents a more attractive starting point, though of course it’s not the only variable to consider.

The limitations of this approach are notable: it fails with tech companies and small caps (where intangible assets are abundant and underestimated by accounting), and it is not immune to “creative accounting” that many companies employ to improve their figures on paper.

What the market actually pays: market value

Finally, there is the price you see on your screen every second of every trading session. Divide the company’s market capitalization by its issued shares, and you get the market value or simply “price.” It’s what buyers and sellers agree upon in real time.

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

This is the number that matters most operationally. Not because it’s “correct,” but because it’s what you pay or receive. It’s the result of order matching: high buying volume pushes the price up, high selling volume pushes it down.

But this also represents its greatest weakness: the market price is influenced by factors that have little to do with the company. Changes in interest rates, economic revaluations, sector-specific relevant events, speculative euphoria or panic… all distort this number. The market can discount future information or overreact to cyclical news, pushing the stock to levels that do not reflect its economic reality.

How to use each in your strategy

For nominal value: You will hardly use it in equities, except as a historical reference. Its true scenario is in convertible fixed-income instruments, where the conversion price is pre-established from the start.

For book value: Use it when investigating whether a company is cheap or expensive relative to its balance sheet. The P/B ratio compared among competitors reveals where there is more relativity. But never rely on it alone; combine it with profitability, cash flows, and other indicators.

For market value: This is your operational terrain. Use it to set entry levels with limit orders, determine profit targets (take-profit), set risk levels (stop-loss), and monitor in real time. During trading hours (Spain 09:00-17:30, US 15:30-22:00, Japan 02:00-08:00, China 03:30-09:30 Spanish time), orders are executed immediately if the price is reached. Outside these hours, you can only place pre-set orders that will execute if the market moves in your favor.

Operational example: META PLATFORMS closes at $113.02, but you expect a drop. You place a buy order for 5 lots with a limit at $109.00. If the price never falls to that level in the next session, your order does not execute. It will only fill if the market touches or falls below your predefined level.

The weaknesses of each approach

Each method has its Achilles’ heel:

• Nominal value: Obsolete quickly, rarely used, offers no insight for current trading.
• Book value: Ineffective with small companies and abundant intangible assets. Vulnerable to accounting manipulations, which, although not frequent, are possible.
• Market value: Highly volatile and unpredictable, subject to euphoria and panic cycles that have little to do with the company’s actual economic health.

Summary for your next investment

The key is not to obsess over a single number. The nominal value of a share tells you where everything started. The book value reveals if there is a relative opportunity compared to its balance sheet. The market value indicates where to operate and when.

Use these three lenses simultaneously: if a stock has a low P/B (accounting opportunity) and the market price is at interesting support levels (operational opportunity), then you have convergence of signals. If the accounting is solid but the price seems irrational, wait. If the balance sheet is weak but the price is depressed, avoid.

Investing is not just reading an article and acting. It’s building an arsenal of tools, each useful in its specific context. Master these three perspectives, and you will be better prepared than most traders who only look at what the price indicates.