Practical Guide: How to Distinguish Between Price, Accounting, and True Valuation of a Stock

Why does the same stock have three different values? This article shows you how market value, nominal value, and book value reveal different aspects of an investment, and when you should trust each one.

The Starting Point: Understanding What Each Value Means

Before trading, you need to understand an uncomfortable truth: the price you see on the screen is not the only way to value a stock. There are at least three different perspectives, each answering different questions.

The nominal value is the simplest: it represents the initial capital divided by the number of shares issued. If a company issues 500,000 shares with a share capital of €6,500,000, each share has a nominal value of €13. In reality, this number tells you little about whether the stock is expensive or cheap today.

The book value shows you something more relevant: the difference between what the company owns (assets) and what it owes (liabilities), divided among all its shares. If MOYOTO S.A. has assets worth €7,500,000, liabilities of €2,410,000, and 580,000 shares issued, the book value is €8.775 per share. This number gets you closer to what it “should” be worth according to its books.

Market value is different: it’s what someone is willing to pay right now. If OCSOB S.A. has a market capitalization of €6.940 billion and 3,020,000 shares, the current price is €2.298. This is the number that determines your gains or losses.

Why These Three Values Are Radically Different

The reason is simple: they come from completely different sources.

Nominal value comes from the company’s founding documents, set at the time of the IPO. It rarely changes and has little practical use in (although it does in bonds).

Book value is updated quarterly or annually based on financial statements. It’s objective in theory, but depends on how the company records its operations. “Accounting tricks” exist, especially in tech and small companies where intangible assets distort reality.

Market value fluctuates every second. It’s set by supply and demand but also reacts to news, interest rate changes, sector sentiment, or simply collective euphoria that has little to do with the company’s fundamentals.

When to Use Each Value in Your Investment Decisions

Nominal Value: Limited but Specific Applications

Frankly, it’s not very useful in daily operations. Its interpretive scope is very narrow.

However, it reappears in hybrid instruments like convertible bonds. For example, in the issuance of IAG convertible bonds in May 2021, a conversion price (similar to a “reference nominal value”) was established, determining at what price you could exchange the bond for shares in the future. Knowing this value allows you to assess whether the conversion will be profitable when maturity arrives.

Book Value: The Tool of Value Investing

This is where it truly becomes relevant. Warren Buffett and his followers use book value as a compass to find undervalued companies.

The strategy is elegant: they look for companies with two characteristics simultaneously: (a) a solid balance sheet and a robust business model, and (b) a market price below what that balance sheet would justify. When both conditions coincide, they invest.

To do this, they use the ratio Price / Book Value (P/VC). The lower, the better. Let’s look at a real example:

Compare two gas companies in the IBEX 35:

• ENAGAS: Low P/VC, meaning the market values it close to its book value
• NATURGY: Higher P/VC, suggesting the market demands a premium over its book value

A value investor would prefer ENAGAS in this scenario, as it offers more “book value” per euro invested. But beware: this ratio works best when used alongside other indicators (return on equity, profit growth, etc.), not in isolation.

An important limitation: book value is especially misleading in tech and small companies, where intangible assets (software, brands, patents) are not properly reflected on the balance sheet.

Market Value: Your Only Real Operational Reference

The price you see on your broker is the result of the clash between buy and sell orders. Nothing more, nothing less.

This has critical implications:

• It’s your reference for setting take-profits and stop-losses
• It determines your actual gains when closing positions
• It constantly changes, even within the same session

But here’s the catch: the price doesn’t tell you if a stock is expensive or cheap. It only tells you the price. To judge if it’s costly, you need other tools: the PER (price-earnings ratio), the PEG ratio, cash flow analysis, or sector comparisons.

Market value is influenced by factors that often disconnect from financial reality:

• Aggressive monetary policy decisions affect entire industries
• Announcements of relevant sector news revalue all stocks in that sector
• Changes in general economic outlooks reassign valuations
• Sector euphoria can inflate prices without fundamental justification

Practical Example: How to Decide Between META Shares

Imagine META PLATFORMS closes today at $113.02 after a sharp decline. You think it might fall further during the next session.

What information do you need?

From the book value: To see if it’s truly undervalued relative to its books, or if the market has already priced in that decline.

From the market value: To set a buy limit order at $109.00, so it executes automatically if the price drops as you expect.

Don’t expect the nominal value to tell you anything here (it won’t). Only the market price allows execution. But only the comparative book value tells you if it’s a bargain.

The Real Disadvantages of Each Method

Nominal value: Its biggest problem is being a dead number. It’s fixed at IPO and barely evolves. For equity trading, it has little weight in modern decisions.

Book value: It falls into accounting tricks (especially in creative companies with their numbers). It’s also a poor reflection of asset-light companies. Don’t be surprised if a tech startup has a negative book value while growing explosively.

Market value: It captures too much noise. It reacts to future expectations that may not materialize, irrational sentiment, or mispricing. That’s why it’s volatile and sometimes seemingly unjustified.

Comparative Table: When to Trust Each One

Conclusion: Build Your Own Decision Compass

There is no single “true value” of a stock. Instead, each perspective illuminates a different aspect:

• Use nominal value only if working with convertible bonds or historical references
• Use book value to identify potentially undervalued companies (especially in traditional sectors)
• Use market value to execute your trades and measure your results

Investing requires interpreting these three numbers together, not in isolation. The best investor is not the one who memorizes formulas but the one who understands what question each answers and when to ask each.

At MiTrade, you will find all the tools to monitor these values in real time and execute your decisions with precision.