Recently, while looking at stocks, I found that many people are asking a fundamental question: How do you determine if a stock is cheap or expensive? Actually, the book value per share (BVPS) is a very good starting point.

Simply put, BVPS is the company's net assets divided equally among all shares. In other words, it reflects the actual asset base that shareholders own after deducting all liabilities. The calculation is not complicated: just divide shareholders' equity by the number of outstanding shares. For example, if a company has shareholders' equity of 1.5 billion yuan and 1 billion shares outstanding, then the BVPS is 1.5 yuan.

But here’s a common pitfall—Is a higher BVPS always better? Not necessarily. I’ve noticed many people directly link BVPS with stock price movements, but in reality, stock price reflects market expectations for the future, while BVPS is more about past accumulated book assets. When the stock price is above BVPS, the market is willing to pay for growth potential; conversely, a stock trading below BVPS doesn’t automatically mean it’s cheap, as it could be facing profit declines or industry downturns.

This is also why different industries place varying importance on BVPS. For capital-intensive industries like finance, shipping, and steel, BVPS is an important reference; but for tech and software companies, their value is more derived from technology and innovation, and looking at BVPS alone can be misleading. For example, companies like NVIDIA and Microsoft, BVPS is not the most critical indicator.

For practical application, I recommend looking at the Price-to-Book ratio (PBR). Divide the market capitalization by BVPS to get PBR; a lower number generally indicates relative cheapness. But this is just the first step. 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 instance, TSMC’s PBR is about 4.29, JPMorgan Chase around 1.94, Ford Motor about 1.19. These numbers don’t have an absolute good or bad; it’s about their position within their respective industries.

Also, don’t confuse BVPS with earnings per share (EPS). The former looks at book assets, while the latter shows how much profit is earned. One is asset-based, the other profit-based. If a company has a high BVPS but low EPS, it might mean assets aren’t effectively converted into profits; conversely, high EPS with low BVPS could indicate an asset-light, high-efficiency model.

Checking BVPS is easy—most stock inquiry websites or brokerage software can display it directly, or you can calculate it yourself from the company’s financial reports.

Honestly, BVPS is just the starting point for understanding stocks. The real value comes from combining it with PBR, EPS, ROE, and industry characteristics. Using the right tools allows you to get closer to the true investment value of a company.