Net Asset Value per Share in Stock Investment: How to Use This Indicator for Precise Stock Selection?

When making stock investment decisions, investors often refer to multiple fundamental indicators. Among them, “Net Asset Value per Share” (NAVPS) is an important tool for measuring a company’s asset base and is frequently included in stock selection frameworks. But how should this indicator be correctly understood and applied?

Understanding the Essence of NAVPS from Asset Value Perspective

NAVPS originates from the concept of a company’s net assets. Simply put, it reflects the actual asset value represented by each share of stock.

A listed company’s net assets equal its total assets minus total liabilities. This includes elements such as share capital, capital surplus, retained earnings, and undistributed profits. When we distribute net assets evenly across all circulating shares, we obtain the NAVPS—that is, “the intrinsic value implied behind each share.”

Generally, NAVPS reflects the long-term accumulated results of a company’s operations and serves as a fundamental support for stock price.

Detailed Calculation Methods for NAVPS

The basic formula for calculating NAVPS is:

NAVPS = Net Assets / Total Outstanding Shares

Since net assets equal total assets minus total liabilities, it can also be written as:

NAVPS = (Total Assets - Total Liabilities) / Total Outstanding Shares

From an accounting perspective:

NAVPS = (Share Capital + Capital Surplus + Retained Earnings + Undistributed Profits) / Total Outstanding Shares

Taking Uni-President (1216.TW) as an example, suppose the company’s total assets are NT$2.5 billion, total liabilities NT$1 billion, and circulating shares are 1 billion shares, then:

NAVPS = (2.5 billion - 1 billion) / 1 billion = NT$1.5

If the individual accounting elements are known, for example, share capital NT$700 million, capital surplus NT$400 million, retained earnings NT$300 million, undistributed profits NT$100 million, and circulating shares 1 billion shares, then:

NAVPS = (700M + 400M + 300M + 100M) / 1 billion = NT$1.5

Is a Higher NAVPS Always Better?

In practical investing, many people hold a misconception—that higher NAVPS is always better. In reality, this understanding is not entirely accurate.

Relationship Between NAVPS and Stock Price

The true value of a stock is ultimately determined by the company’s future profitability, which depends on its ability to generate sustainable cash flow. NAVPS is just an accounting figure representing the current asset scale; it has no necessary positive correlation with future earnings potential.

A company that frequently incurs losses may have a seemingly high NAVPS now, but its downward trend will continually erode shareholder wealth. Conversely, a profitable company with a lower NAVPS might actually have greater growth potential.

Changes in NAVPS Do Not Necessarily Drive Stock Price Up

An increase in NAVPS may support a rising stock price to some extent, but there is no absolute positive correlation. Stock price movements are influenced by many complex factors, including market sentiment, industry cycles, competitive landscape, and investor expectations.

Therefore, when NAVPS rises, stock prices do not necessarily follow; and vice versa. Relying solely on this indicator for buy decisions is not wise.

Be Cautious of the True Reasons Behind NAVPS Fluctuations

NAVPS fluctuations usually stem from two situations: one, changes in net assets due to operational performance; two, capital operations such as issuing new shares or stock dividends.

When screening stocks, it is crucial to distinguish between these. If a decline is due to poor management leading to asset erosion, caution is warranted; but if it results from capital operations diluting NAV, it does not necessarily indicate deteriorating company quality. Similarly, improving NAV through share issuance does not automatically imply a better outlook.

Different Industries Have Varying Reliance on NAVPS

Business models and capital structures vary greatly across industries. For manufacturing, real estate, and other asset-heavy sectors, NAVPS is a significant reference indicator. However, for service industries and tech companies that rely heavily on intangible assets and innovation, NAVPS has much less relevance.

For example, companies like NVIDIA (NVDA.US), Netflix (NFLX.US), and Microsoft (MSFT.US) derive their core value from technology, content, and market position, not asset scale. Even with relatively low NAVPS, their investment potential far exceeds many traditional high-NAVPS companies.

Therefore, blindly pursuing high NAVPS may cause missed opportunities in quality investments.

The True Significance of NAVPS

Assessing Business Resilience and Risk Resistance

A higher NAVPS generally indicates a more substantial asset base, providing a buffer during tough times. It also reflects accumulated operational results over the years.

Under the same market price, companies with higher NAVPS tend to have lower investment risk.

Judging Relative Valuation

Comparing NAVPS across different periods for the same company can give a preliminary sense of whether the stock is overvalued or undervalued relative to its net assets. When stock price significantly exceeds NAVPS, it indicates valuation premium; conversely, a lower stock price may suggest market undervaluation.

Theoretical Guarantee in Bankruptcy Liquidation

In extreme scenarios, if a company goes bankrupt and is liquidated, NAVPS theoretically represents the amount of funds that ordinary shareholders can ultimately receive. However, actual liquidation values often fall below book value due to depreciation of fixed assets, liquidation costs, and other factors.

Practical Application of Price-to-Book Ratio (PBR)

The PBR is defined as:

PBR = Market Price per Share / NAVPS

This ratio assesses how the market prices a company’s net assets. A lower PBR generally indicates a cheaper stock; a higher PBR suggests a more expensive one.

When to Use This Indicator

PBR is most suitable for:

• Comparing companies within the same industry
• Tracking valuation changes over different periods
• Cyclical stocks (e.g., shipping, steel, energy)
• Screening financial and insurance companies with volatile earnings

Cautions When Applying

A key reminder: a low PBR does not automatically mean a stock is worth buying. It must be combined with assessments of financial health, management quality, industry outlook, and other factors.

Moreover, normal PBR ranges vary significantly across industries. Cross-industry comparisons are invalid; only within the same industry can meaningful conclusions be drawn. For example, real estate firms may have PBRs around 1-2 times, while high-tech companies may reach 5 times or more.

Examples of Quality Taiwanese Stocks Based on PBR

Some stocks filtered by PBR include:

TSMC (2330) – Global leader in semiconductor foundry, technologically advanced, stable cash flow. PBR approximately 4.29

Formosa Plastics (6505) – Major player in Taiwan’s plastics industry, well-integrated upstream and downstream. PBR approximately 2.45

Taiwan Mobile (3045) – Telecom leader with a stable customer base and extensive network coverage. PBR approximately 3.29

Examples from the US market:

JPMorgan Chase (JPM) – One of the largest financial services groups worldwide, spanning investment banking, retail banking, asset management, etc. PBR approximately 1.94

Ford Motor (F) – Well-known global automaker with diverse product lines, committed to innovation. PBR approximately 1.19

General Electric (GE) – Industrial conglomerate across aerospace, energy, healthcare, and power sectors. PBR approximately 0.70

Comparing NAVPS and EPS in Investment Decisions

Investors often consider multiple profitability and asset indicators simultaneously. Understanding the difference between NAVPS and EPS is crucial.

Fundamental Differences Between the Two

EPS (Earnings Per Share) is calculated as:

EPS = (Net Profit - Preferred Dividends) / Number of Common Shares

It reflects the profit generated per share during a specific period.

In contrast, NAVPS emphasizes asset base, while EPS focuses on profitability. A company may have a large asset scale (high NAVPS) but low profit (low EPS) due to poor management; or vice versa.

Investment Strategies Based on NAVPS

Value Investing – Seek stocks trading below their NAVPS, believing there is market mispricing.

Conservative Screening – Prioritize high-NAVPS companies for their stronger risk resistance.

Limitations Awareness – Recognize that relying solely on NAVPS cannot evaluate companies with substantial intangible assets or growth potential.

Investment Strategies Based on EPS

Growth Investing – Track companies with rapid EPS growth, expecting higher future stock prices.

Profitability Analysis – Companies with EPS above industry average tend to have stronger competitiveness.

Valuation Tools – Use EPS to calculate Price-to-Earnings ratio (PE) for assessing over- or under-valuation.

How to Quickly Check NAVPS

Via Trading Platforms and Financial Websites

Most legitimate stock trading platforms and financial info sites provide fundamental data. After entering the stock code, NAVPS is usually directly available in the basic info section.

Calculating from Financial Reports

For example, using Uni-President (1216.TW) 2021 annual report:

Based on the financial data, net assets are NT$414,655,454,000, and circulating shares are 56,820,154,000 shares.

NAVPS ≈ NT$414,655,454,000 / 56,820,154,000 ≈ NT$7.3

This manual calculation helps investors gain a deeper understanding of the company’s financial status.

Summary and Investment Recommendations

NAVPS is an important component of the investment analysis toolkit but should not be overly revered. It is most suitable for:

• Assessing a company’s asset base
• Comparing financial robustness within industries
• Preliminary evaluation of relative stock price position

However, relying on a single indicator has limitations. Mature investors should build a multi-dimensional analysis framework, combining NAVPS, EPS, cash flow, growth rates, industry characteristics, competitive landscape, and qualitative factors like management quality, to make more informed decisions.

Blindly chasing high NAVPS or ignoring this indicator altogether is not rational. The correct approach is—use it flexibly but do not depend solely on it.