Three key metrics to understand stock valuation: nominal, accounting, and market

When we start investing in the stock market, one of the biggest confusions arises when faced with different ways of measuring a stock’s value. Why are there three different measures? Which should guide my decision as an investor? In this analysis, we reveal the key to mastering these three perspectives and applying them correctly in your investment strategy.

The starting point: where do these values come from?

Each metric has a different origin, and that is the first thing you must understand. It is not the same to extract data from a balance sheet as from the real-time market.

Nominal value: the root of everything

It is the simplest to calculate but also the least used in equity. It is obtained by dividing the company’s share capital by the total number of shares issued. Imagine a company with a share capital of €6,500,000 and 500,000 shares issued. The result is straightforward: €13 per share. This is the nominal value, the theoretical price from which everything started.

However, once the shares begin trading on the stock exchange, this value quickly loses relevance. It is more of a historical reference point than a decision-making tool for investors.

Book value: what accounting says

Here we enter more interesting territory. The book value reflects what the company “is worth” according to its books. It is calculated by subtracting liabilities (what it owes) from assets (what it owns) and dividing the result by the number of shares.

For example, if a company has assets of €7,500,000, liabilities of €2,410,000, and has issued 580,000 shares, its book value per share would be ((7,500,000 - 2,410,000) / 580,000) = €8.78. This number tells us the net equity attributable to each shareholder according to accounting.

Market value: what the market is willing to pay

It is the most relevant for any daily operation. It is obtained by dividing the total market capitalization by the number of shares outstanding. If a company has a market capitalization of €6.940 billion and 3,020,000 shares issued, the market value is €2.298. This is the price you will see on your screen when you want to buy or sell.

What does each reveal about business reality?

Beyond the figures, each metric tells a different story about the company.

The nominal value is practically anecdotal in stock analysis. It only becomes important in fixed-income instruments with a defined maturity, such as convertible bonds, where a known conversion price is established in advance.

The book value is the favorite tool of investors practicing value investing. This philosophy, popularized by Warren Buffett, seeks to identify companies with solid balance sheets but whose stock price is artificially depressed. The logic is simple: if a company has a net worth of €8 per share but trades at €5, it could be undervalued.

Book value allows quick comparison between companies in the same sector. Imagine you are studying two energy producers. If one trades with a Price/Book ratio of 0.8 and the other at 1.2, the first is cheaper in terms of its net worth. However, this number is never the sole answer. Tech companies and small caps often distort this ratio because they possess intangible assets that accounting does not record properly.

Market value is what you see every second: the result of the clash between buy and sell orders. Massive buying volume pushes the price up; selling volume makes it fall. The market discounts countless factors: expectations of future earnings, interest rate changes, geopolitical events, sector sentiment. That’s why the market value will never tell you if something is “expensive” or “cheap,” only what the price is.

How to use them in your real trading

The nominal value has little practical use

Its only modern application appears in instruments like convertible bonds, where a pre-set conversion price is established. Outside of these exceptional cases, the nominal value is more of a historical data point than a decision-making tool.

Book value: the fundamental investor’s tool

If you apply the value investing methodology, the book value is your ally. Your strategy could work like this:

• If the balance sheet is solid and the business model is robust, but the price is well above the book value, then wait or look for another opportunity.
• If the price is attractive but the balance raises doubts about solvency, avoid investing.
• If you find a company with a strong balance sheet and a price below its book value, that is your comfort zone.

The Price/Book ratio (P/VC) is especially useful for quick comparisons within specific sectors. For example, analyzing two listed gas companies, you might see that one has a P/VC of 0.75 while the other is at 1.05. The first presents a better price-to-equity ratio.

But remember: a single ratio is never enough. Always complement it with profitability, leverage, revenue growth, and other metrics.

Market value: your daily reference

It is the first thing you will look at on your trading platform. The market price is your operational anchor. If you buy intending to sell higher, you set your profit target based on that price. If you short sell, do the opposite with your stop loss.

Timing is critical. Stock markets have specific hours depending on the region:

• Europe (Spanish markets and main indices): 09:00 to 17:30 Spanish time
• United States: 15:30 to 22:00 Spanish time
• Japan: 02:00 to 08:00 Spanish time
• China: 03:30 to 09:30 Spanish time

Outside these hours, you can only place limit orders that will execute if the market moves during the next session.

A real example: suppose META PLATFORMS drops dramatically during the session and closes at $113.02 when you expected a larger fall. You set a limit buy order at $109.00 expecting it to continue falling. If the next day the price rebounds, your order will not execute because the value never touched your level. Conversely, if it had fallen to $108.50, your order would have been automatically executed.

The shadows of each method: their real limitations

The nominal value is practically obsolete in equities. Its application is so specific and its usefulness so limited that it rarely affects modern investment decisions.

The book value has a significant Achilles’ heel: it is particularly inefficient for valuing tech companies, established startups, and small caps. These companies possess massive intangible assets (patents, software, brand, data) that accounting greatly undervalues. Additionally, “creative” accounting — legal but questionable practices that inflate or deflate figures — can introduce distortions that make the book value not 100% reliable.

Market value is unpredictable by nature. The market discounts not only current facts but also future expectations that are often wrong. An aggressive interest rate policy can crush a price without the company changing. Rumors of mergers or splits can spike it. A relevant sector event, regulatory changes, macroeconomic outlook shifts… all impact it. Too often, the market enters irrational euphoria or unfounded panic that completely distorts prices from fundamental reality.

Summary of the three perspectives

The conclusion that will lead you to better decisions

The reality is that these three metrics exist because each answers a different question. The nominal value tells you where everything began. The book value asks if there is room between what it is worth according to the books and what the market pays. The market value gives you the current price, without judgment.

A serious mistake is to rigidly cling to only one metric. That a stock has an attractive P/VC does not mean you should buy if the company is in operational decline. That the market value has fallen does not mean it is a buy if the balance sheet has deteriorated.

True investing mastery involves using these three perspectives as an integrated system. Look for companies where the balance sheet is solid (favorable book value), where the price has been unjustly punished (depressed market value compared to its history), and where the macroeconomic context is not at maximum risk. Combine technical analysis, fundamental analysis, and risk management. That is the formula that separates winning investors from those who simply play.