Three ways to analyze a stock: How nominal, book, and market value help you invest better

When you want to invest in a stock, you have three different lenses to evaluate it. Each tells a different story about the same asset. In this practical guide, we will show you how the nominal value, book value, and market value work, when to trust each one, and where their pitfalls are.

Why are there three ways to value a stock?

It all stems from a fundamental question: What is the “real” price of a stock? The answer depends on which aspect you want to analyze.

A stock does not have a single true value. The nominal value tells you where it all started. The book value shows what’s behind the books. The market value reflects what the market is willing to pay right now. They are complementary, not competing.

Market value: What you see on your screen every day

Let’s start where most investors spend their time: the daily trading price, known as market value.

Market value is simply the result of the meeting between buyers and sellers. If more people want to buy than sell, the price goes up. If the opposite happens, it goes down. Nothing more, nothing less.

How it’s calculated:

Market Value = Market Capitalization ÷ Total Shares Outstanding

Practical example:

Imagine a listed company with a market capitalization of €6,940 million and 3,020,000 shares outstanding. The market value would be:

Market Value = €6,940,000,000 ÷ 3,020,000 = €2.298 per share

This is the number you’ll see blinking on your trading platform during trading hours.

When to use this value:

It’s your daily operational compass. If you place a buy order, the reference is the market value. If you want to use limit orders (buy only if it falls to a certain price), the market value is your limit.

Its main weakness:

Market value reflects much more than the financial health of the company. It reflects opinion, speculation, geopolitical news, interest rate changes, sector euphoria, or collective panic.

If the central bank announces a tightening of monetary policy, all stocks fall, even if individually they are solid companies. If there’s an important sector announcement, your stock bounces even if its numbers haven’t changed. Market value is volatile, sometimes disconnected from operational reality.

Book value: What accounting says about the company

Now we change perspective. If market value is “what the market thinks it’s worth,” book value is “what accounting says it’s worth.”

How it’s calculated:

Book Value = (Assets - Liabilities) ÷ Total Shares Outstanding

In other words: net equity divided by the number of shares.

Illustrative example:

A company has:

• Assets: €7,500,000
• Liabilities: €2,410,000
• Shares outstanding: 580,000

Book Value = @E0€7,500,000 - €2,410,000( ÷ 580,000 = €8.775 per share

What it’s useful for:

It’s the favorite tool of value investors, those who follow Warren Buffett’s maxim: “Buy good companies at a good price.” These investors compare market value with book value using the Price/Book ratio )P/B(.

If a stock trades at €5 and its book value is €8, the P/B ratio is 0.625. That means you’re paying 62.5 cents for every euro of net worth. In theory, it’s cheap.

Imagine two gas companies in the IBEX 35. Comparing their P/B ratios, you could identify which offers a better price-to-equity relationship. The one with the lower ratio would be “cheaper” relative to its book value.

Its important limitations:

• Accounting doesn’t always reflect reality: Creative accounting tricks exist. A company can fudge its numbers.
• Doesn’t work well with tech or small companies: Startups have intangible assets )patents, talent, brand( that don’t appear properly on the books, so their book value underestimates their real worth.
• Small caps and companies with many intangible assets create inefficiencies: Book value simply doesn’t capture their true potential.

Nominal value: The forgotten starting point

Finally, there’s the nominal value. It’s the least used in daily trading but still has its place.

How it’s calculated:

Nominal Value = Company’s share capital ÷ Total Shares Outstanding

Example:

A company has share capital of €6,500,000 and issues 500,000 shares.

Nominal Value = €6,500,000 ÷ 500,000 = €13 per share

This was the initial price when the company issued those shares to the market.

Why it matters little in equity trading:

Nominal value has very short relevance. It’s fixed at issuance and then loses importance because shares have no maturity. It’s not like bonds, where the nominal determines how much you get back at maturity.

Where the nominal value appears now:

In convertible bonds. When you invest in a convertible bond, you receive periodic interest and, at maturity, have the option to convert your bond into shares at a pre-set price. That conversion price functions as a “reference nominal value,” although it’s calculated with a more complex formula )usually a percentage of the average share price over a certain period(.

Practical comparison: When to use each one

Long-term value investing:

• Priority: Book value vs. market value
• Key question: Is the stock cheap compared to its net worth?
• Tool: P/B ratio

Daily trading:

• Priority: Market value
• Key question: At what price do I buy and sell?
• Tool: Limit orders based on market price

Convertible analysis:

• Priority: Nominal value of the bond + conversion possibility
• Key question: At what price can I convert, and what will be the share value then?

What you should know about each method’s limitations

Limitations of nominal value:

• Very short interpretative scope
• Adds little value in modern trading
• Only relevant at issuance

Limitations of book value:

• Vulnerable to creative accounting )creative accounting(
• Inefficient for valuing tech, startups, and companies with significant intangible assets
• May not reflect true financial position in these sectors

Limitations of market value:

• Highly influenced by factors outside the company: monetary policy decisions, geopolitical news, economic expectation changes
• Susceptible to irrational euphoria across entire sectors
• Can overstate or understate events, distorting financial reality
• Reflects present and future speculation, not just current operational reality

Quick reference table

Context is everything

Here’s the uncomfortable truth: none of these values are “correct” at all. All are incomplete tools.

A good investor doesn’t cling to a single metric. You don’t invest just because P/B is low. You don’t sell just because market value drops 5%. Don’t confuse correlation with causation.

Experienced investors triangulate information. They look at book value to identify if the company has solid fundamentals. They monitor market value for operational opportunities. They contextualize both within the sector, the economy, and specific market news.

Investing requires interpretation, not just reading numbers. This is where experience, continuous financial education, and fundamental analysis come into play. Each value gives you a clue; your job is to connect all the clues.