Three ways to analyze a stock: a practical guide to understanding its nominal, accounting, and market value

When we operate in the stock market, we constantly encounter three price references that generate confusion even among experienced investors. This article concludes our analysis of stock valuation by explaining the key differences between the nominal value meaning of a share, its book value, and the real-time market price.

Where to start? The sources that feed each valuation

The first question we must ask ourselves is: where do we extract each of these values from? The answer will determine what information we obtain and when to apply it.

The nominal value: the historical starting point

Every share has an origin, a moment when it is born. The nominal value is precisely that: the theoretical price assigned at the time of issuance. Its calculation is straightforward: we take the company’s share capital and divide it by the total number of shares issued.

Let’s look at a specific case. BUBETA S.A. decides to go public with a share capital of €6,500,000 and issues 500,000 shares. The nominal value of each share would be: €6,500,000 ÷ 500,000 = €13 per share.

This nominal value at the time of the IPO tells us little about the actual price we will pay later. It is more of a historical reference than a tool for secondary market investment.

The book value: what the company’s accounting says

Here we move from theory to financial reality. The book value (or net book value) shows what each share would be worth if we liquidated the company at that exact moment. Its formula is: (Assets - Liabilities) ÷ Number of shares issued.

Take the example of MOYOTO S.A.: it has assets of €7,500,000, liabilities of €2,410,000, and has issued 580,000 shares.

Calculation: (7,500,000 - 2,410,000) ÷ 580,000 = €8.775 per share

This book value is what accountants call “book value.” It reveals whether a company is undervalued or overvalued by comparing this figure with the current stock price.

The market value: what we actually pay

The third pillar is the price we see on the screen, which determines how much it costs to buy or sell a share right now. It is calculated by dividing the total market capitalization by the number of shares outstanding.

Example: OCSOB S.A. has a market capitalization of €6.940 billion and 3,020,000 shares issued.

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

This is the only price that matters when executing a buy or sell order in real time.

What does each metric reveal about a stock?

Knowing how to calculate is not enough; we need to understand what information each indicator provides us.

The nominal value (meaning has very limited applicability in equity )stocks(, but plays an important role in fixed income )bonds(. Basically, it tells us where everything started. In convertible bonds, for example, this reference price is crucial: it establishes the price at which we will exchange the bond for shares in the future.

The book value is the favorite metric of value investors, the strategy popularized by Warren Buffett based on “buying good companies at a good price.” This indicator allows us to detect opportunities where the market has undervalued a company with a solid balance sheet, or where it is paying too much for a company without strong fundamentals. By comparing the stock price with the book value )via the P/B ratio(, we identify misalignments.

The market value is pure reality: it tells us what the stock costs today, right now, in this very second. It does not tell us if it is expensive or cheap; it simply shows the price set by the intersection of supply and demand.

How to apply each value in your investment strategy

Applications of the nominal value )meaning

Its use in the stock market is marginal. However, it appears in very specific moments: when a company issues convertible bonds. In the issuance of IAG’s convertible bonds in May 2021, for example, the conversion price was set as a percentage of the average stock price during a certain period. This pre-set price acts as a “reference nominal value” that defines how many shares you will receive at maturity.

Applications of the book value

This is where the real action of value investing happens. Imagine you want to invest in a gas company from the IBEX 35 but don’t know which one to choose. Let’s compare ENAGAS and NATURGY using the P/B ratio:

ENAGAS has a lower P/B ratio than NATURGY, meaning it is cheaper in terms of book value. If both have similar fundamentals, ENAGAS would be the more attractive option.

But beware: the P/B ratio should never be your only criterion. It must be combined with fundamental analysis, sector trends, management quality, and other indicators like PER or EPS.

Applications of the market value

This is the price you see every day on your trading platform. It is the direct result of thousands of buy and sell orders crossing in real time. It is your main reference when setting your profit or loss targets.

Practical example: META PLATFORMS closes the session at $113.02. You think it will fall further tomorrow. You place a limit buy order at $109.00. If the price does not fall to that level during the next session, your order simply does not execute.

It is important to remember that trading hours vary by market:

• European exchanges: 09:00 to 17:30 (Spanish time)
• US markets: 15:30 to 22:00
• Japan: 02:00 to 08:00
• China: 03:30 to 09:30

Outside these hours, you can only leave pre-set orders that will execute if the market reaches your target prices.

The limitations of each valuation approach

No method is perfect. Each has its weaknesses.

The nominal value (meaning) is simply outdated. It is born, fulfills its function at the time of issuance, and then its relevance fades away. In the world of equities, it is almost anecdotal.

The book value fails particularly when trying to value tech companies or small caps (small caps). These companies often have huge intangible assets (patents, brand, talent) that accounting does not reflect properly. Additionally, creative accounting (legally manipulative accounting tricks) can distort this indicator, though rarely.

The market value is deeply volatile and irrational. It is driven by:

• Monetary policy announcements interest rate hikes or cuts
• Relevant sector news affecting the business
• Changes in economic outlooks of the country of origin
• Speculative trends that irrationally revalue sector stocks

Often, the market overinterprets data or discounts future events disproportionately.

Summary table: a quick reference

Conclusion: beyond a single metric

Understanding these three values and their differences is fundamental, but not sufficient on its own. A competent investor uses all three together.

The nominal value meaning of a share places us in the historical context. The book value allows us to find opportunities where the market makes mistakes. The market value is our daily operational tool.

Investing requires context. Obsessing over the P/B ratio is pointless if you ignore management quality or sector prospects. Similarly, blindly following the market price without reviewing fundamentals is speculation, not investment.

The MiTrade platform provides access to all these data in real time. Your job is to interpret them correctly.