The three dimensions of stock value: How to interpret price, accounting, and capital

When analyzing a stock, we face a common confusion: what is its “true” value? The reality is that there are three completely different perspectives that reveal different realities about the same company. This analysis will help you understand when to apply each one and, especially, why book value is so crucial for investors seeking real opportunities.

Three Different Ways to Measure the “Same” Thing

Although it may seem strange, the value of a stock can be expressed in three radically different ways, each derived from entirely different sources of information.

The starting point: nominal value

Nominal value represents the initial price at which shares were issued. It is calculated simply: dividing the share capital by the number of shares issued.

Let’s look at a practical example: if a company BUBETA S.A. has a share capital of €6,500,000 and issues 500,000 shares, the nominal value per share would be €13.

However, in the world of stocks, this value has little practical relevance. Its utility is limited to the initial issuance moment. In contrast, in fixed income instruments, such as convertible bonds, the nominal value remains relevant over time as a reference for future conversions of bonds into shares.

The accounting snapshot: book value or carrying value

This is where it gets interesting. The book value (also called net asset value or carrying amount) tells us how much a company is really worth according to its balance sheet. It is calculated by subtracting liabilities from total assets and dividing the result by the number of shares issued.

Imagine the company MOYOTO S.A. with assets of €7,500,000, liabilities of €2,410,000, and 580,000 shares issued. The book value would be: ((7,500,000 - 2,410,000) / 580,000 = €8.78 per share.

This method reveals something crucial: the company’s actual patrimonial position. It is here that value investors find their best opportunities. These investors look for companies with solid balance sheets trading at low prices relative to their book value. If a stock trades below its book value, it could indicate that the market is undervaluing it.

) The market reflection: market value or price

Market value is simply what we see on our screens: the price at which shares are traded in real time. It is obtained by dividing the market capitalization by the number of shares.

For example, if OCSOB S.A. has a market cap of €6.94 billion and 3,020,000 shares issued, the market value per share is €2.30.

Interpreting Each: What Does It Really Tell Us?

The difference among these three values is not just mathematical. Each tells a different story about the company.

The nominal value was relevant in the past. Today, it is mainly a historical reference with little operational utility.

The book value connects us to the company’s financial reality. When we compare the market price with the book value using the P/B ratio ###Price/Book Value(, we can identify whether a stock is expensive or cheap relative to its true equity. A company with a strong balance sheet, good margins, and positive cash flows should trade at a reasonable multiple of its book value. If not, there is a disconnect between what is on the books and what the market is willing to pay.

The market value is the live current figure. It reflects what all participants have decided the company is worth at this moment, based on available information, future expectations, market sentiment, and multiple external factors. The market price does not tell us whether something is expensive or cheap—only what the current consensus is.

Practical Applications: When to Use Each

) Book value in investment decisions

Book value is especially valuable for those adopting a value investing approach. The maxim of this style is simple but powerful: “Buy good companies at good prices.”

The strategy works as follows:

• If the company has a solid balance sheet and a good business model but trades at a very high price relative to its book value, do not invest.
• If the price is attractive but the balance sheet shows weaknesses or inefficiencies, do not invest either.
• Only invest if the company has a strong balance sheet and its market price is below the value suggested by that balance sheet.

Let’s consider a real case: two gas companies listed on the IBEX 35. Comparing their P/B ratios, we find that one trades at 1.2x its book value while the other trades at 1.8x. All else equal, the first would offer a better price-to-value ratio. However, this should never be the sole criterion. Other factors—dividends, projected growth, competitive positioning—also influence.

Market value in daily trading

Market value is our daily working tool. When we place limit buy orders to enter a stock when it falls to a certain price, we are operating with the market value. When we set take-profits or stop-losses, we are defining our targets and risks based on the price.

The stock market operates on specific hours. Major European exchanges open from 9:00 to 17:30 ###Spanish time(. The US market from 15:30 to 22:00. Japan from 02:00 to 08:00 and China from 03:30 to 09:30. Outside these hours, only pre-set orders can remain pending.

The example of META PLATFORMS illustrates this well: if the price closes at $113.02 and we believe it will fall further tomorrow, we can place a limit buy order at $109.00. It will only execute if the actual market hits that level. If the price bounces and rises, our order never executes because the market never touched our target price.

Inevitable Limitations of Each Method

Each valuation method has weaknesses that we must recognize.

Nominal value: Its main limitation is that it quickly becomes obsolete. After the initial issuance, it provides virtually no useful information for equity investment decisions.

Book value: Has significant difficulties when applied to:

• Tech companies with large intangible assets )brand, intellectual property, data(
• Small caps
• Companies subject to “creative accounting” that distorts their real figures

A balance sheet may look excellent on paper but hide unpleasant realities. That is why it must always be complemented with deeper analysis of earnings quality, cash flow, and historical trends.

Market value: Its fundamental limitation is indeterminacy. The price can deviate significantly from actual fundamentals due to:

• Changes in interest rate policies
• Sector-specific relevant events
• Changes in macroeconomic expectations
• Sectorial euphoria or panic that generates irrational revaluations

Markets often overinterpret information or discount it incorrectly, moving the price away from what operational reality would suggest.

Quick Reference Table

Summary: Context Is Everything

Modern investing requires mastering these three concepts simultaneously but applying them according to the right context.

Book value remains the compass that tells us if a company is fundamentally interesting at its current price. It helps us separate market noise from real opportunities. But it is not enough on its own.

Market value anchors us to the present reality. It shows us where we can actually buy and sell today.

And nominal value, although less relevant in modern decisions, reminds us of the starting point.

Mastery in investing consists of knowing when to trust each of these three values and when to recognize that, together, they offer a more complete view than any individual one. The truth about an investment never resides in a single number but in the convergence of multiple perspectives analyzed with rigor and proper context.