Using Net Asset Value Indicators for Precise Stock Selection: A Complete Guide from Fundamentals to Practical Application

Many investors encounter a dilemma when selecting stocks: should they trust net asset value or profitability? In fact, these two indicators each have their focus. Understanding their differences is key to avoiding detours in investing.

The Core Logic of Net Asset Value (NAV) Stock Selection: Asset Value vs. Profitability

In stock investing, Book Value per Share (BVPS) emphasizes asset valuation, while Earnings per Share (EPS) reflects profitability. The difference lies in:

A company may have a large asset base (high net worth), but these assets might not translate effectively into profits (profitability may be less than ideal). Conversely, some companies have fewer assets but generate substantial profits through efficient operations.

Therefore, investors should not simply pursue higher per-share net asset value but should flexibly apply it based on industry characteristics, company nature, and investment goals.

What Exactly Is Book Value per Share?

The English term for BVPS is Net Asset Value per Share (NAVPS), representing the net assets contained in each outstanding share.

Simply put: a company’s net asset value = total assets - total liabilities. When divided by the total number of shares outstanding, it yields the per-share net asset value. It reflects the intrinsic value per share in the market.

The calculation is straightforward:

• Per-share net asset value = Shareholders’ Equity / Total Outstanding Shares
• Or: Per-share net asset value = (Total Assets - Total Liabilities) / Total Outstanding Shares
• Advanced version: Per-share net asset value = (Share Capital + Capital Surplus + Retained Earnings + Unappropriated Profits) / Total Outstanding Shares

Example: A company has total assets of NT$2.5 billion, total liabilities of NT$1 billion, and 1 billion shares outstanding. Plugging into the formula: (2.5 - 1) / 1 = NT$1.5, which is the per-share net asset value.

High or Low Net Asset Value Has No Direct Relationship with Stock Price Movements

This is a common misconception among novice investors. A higher per-share net asset value does not necessarily mean the stock price will rise.

The reason is that stock prices are determined by future earnings, not current accounting book values. Even if a company’s net worth increases, if its profitability declines or market outlook dims, the stock price can still fall.

More importantly, changes in per-share net asset value can result from two factors: a change in the company’s operating status or the issuance of new shares or stock dividends. The latter may alter the net asset value per share but does not indicate the company’s growth prospects.

Different industries also rely on net asset value to varying degrees:

• Capital-intensive industries like industrials, manufacturing, agriculture rely heavily on net asset value because they profit from land, factories, equipment.
• Service sectors and tech companies, which are lighter on tangible assets, find the net asset value less relevant, as their core assets are intangible (technology, brands, talent).

For example, NVIDIA, Netflix, and Microsoft may have modest per-share net values, but because their products have market demand and technological leadership, their investment value can be greater.

Price-to-Book Ratio (PBR): A Practical Tool for Stock Selection

PBR = Market Capitalization / Book Value (or per-share net asset value)

This ratio indicates how much the market is willing to pay for each unit of net assets.

• Lower PBR suggests the stock is relatively cheap
• Higher PBR suggests the stock is relatively expensive

But a crucial reminder: A low PBR does not automatically mean a stock is a good buy. If a company’s PBR is continuously declining, it may be a sign of deterioration rather than a bargain.

The correct approach is to compare a company’s current PBR with its historical PBR or with industry peers. For example, if a stock’s PBR has historically fluctuated between 1.6x and 2.5x and now drops below 1.6, it might be a buying opportunity.

PBR is especially useful for analyzing these types of companies:

• Cyclical stocks (shipping, steel, coal, oil): profit in boom periods, losses in downturns
• Financial and insurance companies: profitability varies significantly
• Manufacturing: stable asset structure

Practical Application of Net Asset Value in Stock Picking

Value investors use it to find stocks trading below their per-share net asset value, believing these are undervalued by the market. The logic is: if the company were to liquidate today, shareholders could theoretically recover the amount equal to the per-share net asset value. When the stock price is below NAV, it provides a margin of safety.

However, note that this strategy is more effective for capital-intensive companies; it may not suit high-growth, light-asset firms.

Stability analysis

A higher per-share net asset value generally indicates stronger financial stability and risk resistance, as more tangible assets support the company. In lower-risk scenarios, choosing companies with stable and gradually increasing net asset values reduces risk.

Industry comparison

The most effective use of per-share net asset value is to compare companies within the same industry. Under the same market price conditions, a higher net asset value suggests a more solid asset base and more stable operations.

For example, in the food industry, if Master Kong’s stock price is NT$18 and Uni-President’s is NT$20, but Master Kong’s net asset value is NT$10 and Uni-President’s is NT$15, then from a stability perspective, Uni-President may be a more reliable investment.

Net Asset Value vs. Earnings: Which to Use for Stock Selection?

In practice, the most prudent approach is to combine both indicators:

• Use net asset value to assess financial stability and asset base
• Use earnings to evaluate profitability and growth potential
• Use PBR for valuation to see if the stock price is reasonable

How to Check Per-share Net Asset Value?

Method 1: Direct inquiry

On securities trading platforms or stock info websites (like StockWang, HiStock, Financial Report Dog, etc.), input the stock code, and you can find the per-share net asset value in the basic info section.

Method 2: Self-calculation

Use the company’s published financial reports to find shareholders’ equity and the number of shares outstanding, then apply the formula. For example, Uni-President’s 2021 financial report shows shareholders’ equity of about NT$415 million and 568 million shares outstanding, so the per-share net asset value is approximately NT$0.73.

Common Pitfalls in Practice

Pitfall 1: Higher net asset value is always better While a high net asset value indicates a solid asset base, it does not predict future profitability. Tech companies and emerging industries may have lower net asset values but huge growth potential.

Pitfall 2: Only look at net asset value for stock selection Net asset value reflects current asset stock but cannot indicate future earnings prospects. It should be combined with earnings, market outlook, and industry position for comprehensive judgment.

Pitfall 3: Comparing net asset values across industries Industries like industrials, tech, finance, and retail have very different capital structures; their net asset values are not directly comparable. Only compare within the same industry for meaningful insights.

Summary

Per-share net asset value is an important reference for stock selection but not the sole criterion. Smart investors consider:

• Industry characteristics
• Their own investment style (value vs. growth)
• Multiple indicators’ combined performance

To make the final decision. Blindly chasing higher net asset value alone can cause missed opportunities in high-potential, asset-light stocks. The key is to understand the logic behind net asset value and apply it flexibly in practice.