Understanding the True Value of Stocks from Three Perspectives: Investment Wisdom Beyond Surface Price

As investors, we deal with numbers every day, but do you truly understand the multiple dimensions of the stocks you hold? This article will delve into three core methods for evaluating stock value, helping you avoid pitfalls in your investment decisions.

▶ Why do we need multiple perspectives to view stocks?

When you open your trading terminal to check stock prices, what you see is only the market consensus at a specific moment. But behind this price, there are three different “truths.” Some investors place orders based solely on price, risking pitfalls; experienced traders, however, consider all three dimensions simultaneously to make more informed judgments.

① Starting from the balance sheet: understanding the book value of stocks

What is book value?

Book value (also known as net asset value) reflects a company’s true appearance on its financial statements. The calculation is straightforward: total assets minus total liabilities, divided by the total number of shares issued.

This number tells you: if the company were liquidated today, how much would each share theoretically be worth to investors.

Practical example analysis:

Suppose a company has assets worth €7,500,000, liabilities of €2,410,000, and has issued 580,000 shares. Then, the book value per share is (7,500,000 - 2,410,000) ÷ 580,000 = €8.775.

Why do investors pay attention to it?

In value investing, book value is an important tool for screening potential opportunities. Top investors look for companies with solid fundamentals but whose stock price is severely undervalued relative to book value. By comparing the “market price / book value” ratio, you can quickly judge whether a company is undervalued or overvalued by the market.

For example, comparing two energy companies: if Company A’s ratio is 0.8 and Company B’s is 1.2, then Company A is cheaper based on book value.

But it also has limitations:

This method is less effective for evaluating tech companies and small caps, as their value often lies in intangible assets like technology and brand rather than tangible assets. Additionally, financial statements can be manipulated through “creative accounting,” distorting the numbers on the books.

② The role of initial issuance price: valor nominal

What is it?

The initial face value of a stock (valor nominal) is the reference price set at the company’s IPO. The calculation is simple: registered capital ÷ total shares issued.

For example, if a company has a registered capital of €6,500,000 and issues 500,000 shares, the initial face value per share is €13.

Why is it almost useless in stock investing?

Stocks differ from bonds—they have no fixed maturity date. The initial face value only matters at the moment of listing; afterward, it loses its relevance. Stock prices are continuously influenced by market supply and demand, earnings expectations, macroeconomic factors, and drift far from the initial face value.

The only scenario where it still has value:

In convertible bonds, valor nominal regains significance. Holders of such bonds can convert them into new shares at pre-agreed prices under certain conditions. For example, a major airline issued convertible bonds in May 2021, referencing the average stock price over a past period as the conversion price.

③ The market says: real-time stock value

What exactly is the market price?

The market price is the number you see on your trading interface—the transaction price agreed upon by buyers and sellers at any given moment. If there are many buy orders, the price rises; if selling pressure increases, the price falls. It is determined collectively by countless market participants’ decisions.

Calculating the market price is simple: company market capitalization ÷ total shares outstanding.

Real-world example:

If a company’s market cap is €6,940 million and it has 3,020,000 shares, then the market price is €2.298 per share.

Advantages and risks of market price:

As a trader, the market price is your only daily reference point. It reflects all market expectations about the company’s future—good and bad. But this also means the price can deviate significantly from the company’s intrinsic value.

Irrational factors influencing market price:

• Central bank policy shifts (e.g., interest rate hike expectations) can cause irrational declines in stock prices, even if fundamentals remain unchanged
• Sudden industry-specific events may trigger chain reactions
• Rising or falling macroeconomic outlooks influence entire sectors
• Speculative enthusiasm in certain industries can inflate unrelated companies

Therefore, market prices can be severely overestimated or underestimated.

④ How to practically use these three dimensions?

Scenario 1: Screening for potential value investments

When considering investing in an energy company, don’t look at the stock price alone. Check the book value and calculate the price/book ratio, comparing it with competitors. The lower the ratio, the cheaper the stock is relative to its book value. But remember, this is just the first step; further assessment of the company’s operational quality is necessary.

Scenario 2: Using market price for trading

Market price is your benchmark for setting stop-loss and take-profit orders. If you are optimistic about a stock but think the current price is too high, you can set a limit buy order. For example, if a tech giant closed at $113.02 but you expect it might decline further tomorrow, you can set a limit buy at $110. When the price reaches that level, the order executes automatically.

Scenario 3: Understanding what the price implies

An increase in market price doesn’t necessarily mean the company has improved; it could just be market sentiment changing. A rational investor considers all factors—book value, market price, and other indicators (like P/E ratio, earnings per share)—to form a comprehensive judgment.

⑤ Practical tips on trading hours

In a globalized market, the trading hours for the same stock differ across regions (all times in Spain time):

• Major European exchanges: 9:00 to 17:30
• U.S. markets: 15:30 to 22:00
• Japanese market: 2:00 to 8:00
• Chinese market: 3:30 to 9:30

Outside trading hours, you can only submit pre-set orders, which will execute only if the market reaches your specified conditions.

▶ Quick comparison table

▶ What investors should remember

Stock investing is not a simple numbers game. The valor nominal was once useful but is now essentially obsolete. The book value helps identify value traps, while the market price is the real reference you need to act upon.

The key is to understand what each of these three numbers represents and to use them flexibly according to your investment strategy. Blindly trusting a single ratio is dangerous—comprehensive analysis should include fundamentals, industry outlook, management quality, and more.

True investment wisdom lies not in mastering a formula but in understanding the logic behind prices, knowing when to trust the market and when to question it. Start from here, and your investment decisions will become more solid.