Three essential metrics to understand the true value of a stock: nominal, accounting, and market

Do you really know the difference between the issuance price of a stock, its book value, and what it trades for today on the stock exchange? These three indicators — nominal value, book value, and market value — are fundamental for any investor looking to make informed decisions. In this guide, we explain how to interpret them and when to apply each one.

How each valuation is calculated

Each method starts from different information. Understanding this distinction is key to knowing where to find the data you need.

The nominal value of a share is derived by dividing the company’s total share capital by the number of shares issued. For example, if BUBETA S.A. has a share capital of €6,500,000 and has issued 500,000 shares, the nominal value is €13 per share. It is the basis on which the share is created, but it rarely has relevance in daily operations.

The net book value is obtained by subtracting liabilities from assets and dividing the result by the total number of shares issued. Take MOYOTO S.A., which has assets of €7,500,000, liabilities of €2,410,000, and 580,000 shares issued. The calculation is: (7,500,000 - 2,410,000) / 580,000 = €8.78 per share. This value reflects how much each share is worth on the books.

Market value is calculated by dividing the company’s market capitalization by its shares outstanding. If OCSOB S.A. has a market cap of €6.940 billion and 3,020,000 shares, the value is €2.30 per share. This is the price you actually see when you open your trading platform.

What each metric reveals

Knowing a number is not the same as understanding what it means. Each valuation tells a different story about the stock.

Nominal value is mainly a historical reference point. It marks the initial price from which the share begins its life in the market. In stocks, its utility is limited because it has no expiration date. However, it has interesting applications in certain instruments like convertible bonds, where a predetermined redemption price is set based on a specific formula.

Book value is much more useful for investors practicing fundamental analysis. It helps identify potentially undervalued or overvalued companies by comparing their market price with what their financial statements suggest they should be worth. If a company has a solid balance sheet and a robust business model but trades below its book value, it could represent an opportunity. Of course, this method has limitations: it can generate inefficiencies when valuing tech and small companies, and creative accounting can distort the real numbers.

Market value is the metric that dominates your daily trading activity. Unlike the book value, which tells you “what it should be,” the market price tells you “what it is.” It results from the interaction between buyers and sellers, discounting multiple visible and invisible factors. However, the price alone will never tell you if it’s expensive or cheap; for that, you need additional analysis like the P/E ratio, price-to-book ratio, or earnings per share.

When to use each indicator in your strategy

As an investor, each metric has specific moments of application. Knowing how to choose the right one depends on your goal.

Applications of nominal value: Although its presence in equities is marginal, it may appear in convertible bonds. For example, in issuing convertible bonds by an airline, the conversion price to shares is fixed as a percentage of the average price during a specific period. While not exactly a nominal value, it establishes a clear reference for future redemption.

Applications of book value: It is especially valuable for value investors, who follow the philosophy of “buy good companies at a good price.” Under this approach, you analyze two elements: the quality of the balance sheet and the business model, plus the price level at which it trades.

If we compare two listed gas companies, we can examine their Price/Book ratio. If ENAGAS shows a P/B lower than NATURGY, it means ENAGAS is cheaper relative to its book value, which could indicate a better relative opportunity. But remember, no single ratio should be your only guide: always analyze multiple factors together.

Applications of market value: It is your constant reference. Every price fluctuation you see on your screen results from the crossing of buy and sell orders. High buy volume pushes the price up; high sell volume pushes it down. If you plan to buy to sell at a higher price, your profit target is set based on the current price. If you want to enter during a deep correction, you set limit buy orders that only execute if the asset reaches your target price. Keep in mind that stock trading has specific hours: Europe opens 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.

For example, if META PLATFORMS drops sharply and closes at $113.02, you could set a buy order at $109.00 expecting further decline. If the price rebounds in the next session, your order will not execute because the value never reached your trigger level.

Real limitations of each method

No indicator is perfect. Knowing their shortcomings prevents you from falling into common traps.

Nominal value is the most obsolete metric. Its relevance is brief, limited to the moment of issuance, and it offers no practical value in stock trading.

Book value suffers from severe inefficiency when trying to value small companies or firms loaded with intangible assets (such as software or brands). Additionally, creative accounting can introduce distortions that do not reflect the true economic reality, although this is more the exception than the rule.

Market value is deeply influenced by uncertainty. Factors such as monetary policy decisions (interest rate hikes or cuts), relevant sector news, economic cycles, or simply speculative euphoria can drive prices without a direct connection to company fundamentals. The market may over-discount certain data or ignore others, creating disalignments with financial reality.

Comparative summary

To consolidate these concepts, here is a clear summary:

Conclusion: Harmonize your tools

The key is not to rely on a single indicator. The nominal value provides historical context, the book value reveals what accounting says the company is worth, and the market value shows the current consensus among investors.

To make solid decisions, analyze these three indicators together within a broader context. Do not base your investments solely on ratios; consider the sector, competition, financial health, and growth prospects. Investing is an exercise in synthesis, not in solitary formulas. With the right data, appropriate tools, and careful interpretation, you will be better prepared to identify real opportunities in the market.