Three Ways to Value a Stock: Deciphering Nominal, Book, and Market Value

When you invest in stocks, you face a fundamental question: at what price should you really buy? The answer is not unique. There are three valuation methods that offer different perspectives on the same asset. This analysis will help you understand when to apply each one and, more importantly, in which situations they might deceive you.

How Each Type of Value Is Calculated

The fundamental difference among these three methods lies in the data sources they use. Working with accounting information is not the same as analyzing market movements.

The starting point: the nominal value of shares

The nominal value of shares comes from a simple formula: divide a company’s share capital by the total number of shares issued. Suppose BUBETA S.A. has a share capital of €6,500,000 and has issued 500,000 shares. The calculation is straightforward: 6,500,000 ÷ 500,000 = €13 per share.

This value serves as the initial reference point, but its practical usefulness in equity investing is limited. However, it becomes important in convertible bonds, where the redemption price is set using the nominal value as a reference.

What it’s really worth: the book value

The book value takes a different approach. It is obtained by subtracting liabilities from assets and dividing the result by the number of shares.

Example: MOYOTO S.A. owns assets worth €7,500,000, liabilities of €2,410,000, and has issued 580,000 shares. The calculation would be: (7,500,000 - 2,410,000) ÷ 580,000 = €8.775 per share.

This value is especially valuable for value investors, who seek to identify undervalued companies by comparing the market price with what the books say they should be worth.

What the market actually pays: the market value

Market value emerges from the daily crossing of buy and sell orders. It is calculated by dividing the stock market capitalization by the number of shares outstanding.

Take OCSOB S.A. with a capitalization of €6.94 billion and 3,020,000 shares: 6,940,000,000 ÷ 3,020,000 = €2.298 per share.

This is the price you see on your screen every day, reflecting all market participants’ expectations, fears, and hopes.

What Each Metric Reveals

Knowing the numbers is one thing; interpreting them correctly is entirely different.

The historical nominal value of shares mainly serves as an academic reference. In fixed income, it is more relevant because we know that at maturity we will recover that value, but stocks have no maturity date, which reduces its practical applicability.

The book value, on the other hand, allows you to delve into the company’s fundamentals. If the stock price is well below the book value, you might be facing an opportunity; if it’s well above, perhaps the market is overvaluing the company. This method works well for traditional companies with clear tangible assets but shows significant inefficiencies with tech and small companies where intangible assets dominate.

Market value is the realistic one: it reflects “what it is” versus “what it should be.” It doesn’t tell you if something is expensive or cheap on its own; it only shows the transaction price. To judge if it’s a good buy, you’ll need additional ratios like the PER or a deep fundamental analysis.

Practical Applications: When to Use Each

Nominal value in convertible bonds

Convertible bonds are hybrid instruments where you invest initial capital, receive periodic interest, and at maturity, instead of getting your money back, you receive shares at a predetermined price. In the issuance of IAG’s convertible bonds from May 2021, for example, that price was set as a percentage of the historical average quotation. Although not pure nominal value, it functions with a similar logic.

Book value for value investing

Followers of Warren Buffett apply value investing with a clear maxim: “Buy good companies at a good price.” This requires two conditions to be met simultaneously:

First, that the balance sheet and business model are solid. Second, that the market price is reasonable. If only one is met, there is no investment.

To apply this, compare the Price/Book Ratio among competitors. If you analyze Spanish gas companies and see that Enagas has a P/B lower than Naturgy, mathematically Enagas offers more “cheapness” in market value relative to its accounting. It’s not the only consideration, but an effective filter when used with other indicators.

Market value: your daily tool

Market price is your main operational reference. When setting a take-profit when buying, you do so based on a market price level. If you use limit buy orders expecting dips, the market value is your activation point.

Trading hours vary by exchange: Spain operates from 09:00 to 17:30, the US from 15:30 to 22:00, Japan from 02:00 to 08:00, and China from 03:30 to 09:30 (Spanish time). Outside these hours, you can only place pre-set orders that will execute if the market moves in your favor.

Practical example: META PLATFORMS drops to $113.02 at close. You expect more decline and set a buy order at $109.00. The next day, it rebounds. Your order never executes because the price never reached your level.

Limitations You Should Not Ignore

Each method has its Achilles’ heel.

The nominal value of shares suffers from rapid obsolescence. It is defined at issuance and loses relevance immediately afterward in equities. Its use is too specific and offers no real utility in modern trading.

The book value fails spectacularly with small companies loaded with intangible assets, where accounting books do not capture the true value. Additionally, accounting tricks and “creative accounting” can distort this number, although it’s less common than you might think.

Market value is the king of uncertainty. It is dragged by changes in monetary policy (a rate hike crashes the price), sector-specific events, macroeconomic expectation shifts, and often irrational euphoria. It often disconnects completely from the company’s real fundamentals, creating bubbles that inevitably burst.

Quick Reference Guide

Conclusion: Context Is Everything

There is no universally superior method. The nominal value of shares has its specific place; the book value opens doors in fundamental analysis; the market value reflects your daily operational reality.

The key is to apply each in its correct context and never rely on a single indicator. A low P/B ratio without other confirmations is insufficient. Market value is essential for trading, but interpreting it requires multiple layers of analysis. Combine these methods, maintain skepticism, and remember that investing requires more than reading articles: it requires experience and constant updating.