Recently, while organizing my investment notes, I recalled a commonly overlooked issue: how do you determine whether a stock is expensive or cheap? Many people only look at the stock price, but there is actually a more important indicator worth paying attention to.

I'm talking about the book value per share. Simply put, what is book value? It is the company's net assets remaining after deducting all liabilities, divided evenly among each share. In other words, it reflects how much actual accounting value each share truly represents. The calculation is straightforward: divide shareholders' equity by the number of outstanding shares. For example, if a company has 1.5 billion yuan in shareholders' equity and 1 billion shares outstanding, then the book value per share is 1.5 yuan.

But there's a common trap here. Many think that a higher book value is better, but that's not necessarily true. A high book value doesn't mean the stock price will rise, because the stock price reflects the market's expectation of the company's future earning ability, while book value is just accumulated past assets. So when you see a stock price above its book value, the market is actually paying a premium for the company's growth potential; conversely, a stock price below book value isn't always cheap—it depends on whether the company is facing losses or industry decline.

More importantly, the significance of book value varies greatly across industries. For capital-intensive traditional industries like banking, shipping, and steel, book value is a very useful reference indicator because their value mainly comes from tangible assets. But for tech companies like Microsoft and NVIDIA, their core value comes from intangible assets such as technology, brand, and innovation capabilities, which are easily distorted if you only look at book value. When I select stocks, I usually don't focus too much on book value for tech stocks; instead, I pay more attention to EPS and ROE.

In practical application, the price-to-book ratio (PBR) is useful. A lower PBR indicates relative cheapness, but this is just the first step in analysis. A more practical approach is to compare companies within the same industry and business model, combined with profit trends and industry cycles for a comprehensive judgment. For example, TSMC's PBR is about 4.29, and Formosa Plastics' is about 2.45—both are relatively competitive companies in traditional industries. In the US market, like JPMorgan Chase with a PBR of about 1.94, Ford at about 1.19, and General Electric at around 0.70, these values are relatively low.

Book value and earnings per share (EPS) are often confused. Book value reflects how much net assets a company has on its books, while EPS shows how much profit each share earns. One leans toward assets, the other toward profitability. If a company has a high book value but low EPS, it may indicate that assets are not effectively converted into profits; conversely, a low book value with high EPS could suggest a lean, high-efficiency business model.

Checking book value is not difficult. Most stock inquiry websites and brokerage trading software will list it directly, or you can calculate it yourself from the financial reports—divide shareholders' equity by the number of outstanding shares.

Honestly, book value is just the starting point for evaluating stocks, not the end. The more reliable approach is to consider book value, PBR, EPS, ROE, and industry characteristics together to get closer to the company's true investment value. If you only chase higher book value, you might miss many potential investment opportunities. That’s why I never rely solely on one indicator when selecting stocks, but instead use multiple dimensions for cross-verification.