Three ways to view a stock's price: Which one really matters?

When you observe a stock in the market, you probably only see a number on your screen. But that number hides a deeper reality. There are at least three completely different ways to look at a stock’s value, and each tells you something different about whether you should buy or not. Today, we will break down these concepts so you stop confusing them.

The starting point: Understanding where each number comes from

Here’s the first problem: the data you need varies completely depending on what type of valuation you’re looking for. It’s not the same to perform calculations with balance sheet information as it is to work with market data.

Nominal value: The historical reference that almost no one uses

Imagine a company goes public. It needs to establish a starting point, an initial value. That is the nominal value. It is calculated by dividing the share capital by the total number of shares issued.

Example: BUBETA S.A. has a share capital of €6,500,000 and issues 500,000 shares. The nominal value is €13 per share. Simple, right?

Here’s the important part: that nominal value of €13 is practically irrelevant after the first day of trading. It won’t tell you whether the stock is expensive or cheap. It only establishes a historical reference point.

Book value: What accounting says

Now we include the numbers from the balance sheet. We take total assets, subtract liabilities, and divide by the number of shares issued. The result is the net book value or book value per share.

Example: MOYOTO S.A. has assets of €7,500,000 and liabilities of €2,410,000, with 580,000 shares issued. The book value per share is €8.775.

This number does have relevance. It shows what value each share represents if you liquidated the company today. Value investors often use this data extensively.

Market value: What you actually pay

This is what you see every day on your screen. It is calculated by dividing the market capitalization by the number of shares outstanding.

Example: OCSOB S.A. has a market capitalization of €6.94 billion with 3,020,000 shares issued. The market value per share is €2.298.

The difference is crucial: market value changes every second based on what buyers and sellers are willing to pay. The other two values hardly change.

What does each one really reveal about your investment?

Knowing the numbers is one thing. Interpreting them is a completely different matter.

Nominal value: The compass left on land

The nominal value indicates at what price the shares were originally issued. For fixed income (bonds), it remains important because there is a maturity date. But for stocks, its usefulness is very limited.

An exception: convertible bonds. These securities allow conversion into shares at a pre-established price. That conversion price acts as a kind of modern nominal value, but calculated through special formulas depending on each issuance.

Book value: The tool for the patient investor

This is where Warren Buffett and his philosophy of “buy good companies at a good price” come in. The book value allows you to see if a company is undervalued or overvalued according to its balance sheet.

The logic is this: compare the market price with the book value using the P/B ratio (Price/Book Value). If the ratio is low, the stock is trading cheaply relative to what the accounting says it’s worth.

Look at this real example: Comparing two gas companies in the IBEX 35, if Enagas has a lower P/B than Naturgy, it means Enagas is cheaper in the market relative to its book value. That’s an interesting signal for the value investor.

But beware: this tool fails spectacularly with tech companies and small firms. Why? Because their greatest value lies in intangible assets (patents, brand, talent) that do not appear properly on the balance sheet. Also, creative accounting exists, and a balance sheet may not reflect reality 100%.

Market value: The imperfect reflection of reality

Market value is what you see on your broker. It is the price at which the stock is traded at any given moment, resulting from the interaction between buyers and sellers.

Here’s the fascinating part: the price incorporates not only the current reality of the company but also market expectations about the future. But those expectations can be completely irrational.

An announcement of a change in interest rates can spike or plummet the price, without anything changing in the company. News about the sector, a macroeconomic crisis, or simply speculative euphoria can create huge distortions.

Market value never tells you whether something is expensive or cheap. It only tells you “this is being sold at this price right now.” To know if it’s a good buy, you need other indicators like the PER, EPS, or solid fundamental analysis.

How to use each concept in your real trading

Nominal value: Recognize it but don’t use it

In stock trading or investing, the nominal value has almost no practical application. The only time it remains relevant is in fixed income issues or corporate operations like capital increases.

If you see someone building their strategy based on the nominal value of shares, they probably don’t understand the topic well.

Book value: Your tool for profit hunters

If you believe a sector is being unfairly punished, the book value is your ally. You can quickly compare several companies in the same sector using the P/B ratio and filter which ones are cheaper in terms of balance sheet.

This is especially useful in cyclical sectors like banking, energy, or construction, where the balance sheet still reflects the true value well.

But remember: the P/B ratio is just an indicator. You need to confirm with other data (profitability, debt, growth) before making a decision.

Market value: Your daily operational compass

The market price is where you make your decisions. If you see that a stock you wanted to buy has fallen 15% today, you set a limit buy order at a level you find interesting.

Trading hours vary by market:

• Europe: 09:00 to 17:30
• USA: 15:30 to 22:00
• Japan: 02:00 to 08:00
• China: 03:30 to 09:30

Outside these hours, you can only place pre-set orders.

Practical example: META PLATFORMS closes at $113.02 after a sharp drop. You think it might fall further tomorrow. You set a limit buy order at $109.00. If the market doesn’t fall below that, your order won’t execute, even if the market ends up rebounding. The market price is your decisive factor.

The limitations you need to know

Each method has its weaknesses. Ignoring them is dangerous.

Limitations of nominal value: It is basically obsolete for stock trading. Its only utility is historical and educational. It adds nothing to your daily investment analysis.

Limitations of book value: Fails with tech companies, where much of the value is intangible. It is also vulnerable to creative accounting. A company can manipulate its balance sheet without it being illegal. And in small companies with few tangible assets, it is practically useless.

Limitations of market value: It is the most unpredictable because it reflects sentiment, rumors, and market expectations. It can disconnect completely from the company’s reality for months or years. Speculative bubbles are the perfect example: prices rising without any fundamental justification.

Market value also tells you nothing about intrinsic worth. It is only the intersection of supply and demand.

Summary: When and how to use each

What you should carry with you

There is no single “true price” of a stock. There are three different perspectives measuring different things.

The nominal value is history. Forget it for trading.

The book value is the best friend of the value investor. Use it to compare companies in the same sector and spot undervalued ones.

The market value is your daily reality. It’s where you make or lose money, but never confuse the price with the value.

The key is to understand that these three concepts answer different questions:

• Nominal value: At what price was it issued?
• Book value: What does the balance sheet say it should be worth?
• Market value: At what price is it trading right now?

Mastering these three concepts and their limitations is the first step to making informed investment decisions. Then, of course, come the more advanced indicators, technical analysis, and patience. But this is the foundation.