How to differentiate the nominal, book, and market value of a stock: a practical guide for investors

When you buy a stock, you face a constant question: what should its actual trading price be? The answer is not straightforward because there are three completely different reference values that will tell you different things about the same asset. Understanding what each one means and when to apply it is essential for making solid investment decisions.

In this guide, we explain the difference between the nominal value (meaningful real value), the book value, and the market value, when to use each, and, more importantly, their limitations.

The fundamental distinction: where each value comes from

Nominal value: the issuance price forgotten

The nominal value of a stock comes from a simple calculation: you take the company’s share capital and divide it by the total number of shares issued. Although it seems easy, this method has little impact on the investor’s daily practice.

Let’s imagine a manufacturing company issues 500,000 shares with a share capital of €6,500,000. Its nominal value would be €13 per share. This price only reflects the initial division of capital, without considering how the business has actually evolved.

The true meaningful nominal value becomes important in fixed-income instruments like convertible bonds, where a predetermined conversion price is set for the future. However, in the stock market, this value quickly loses relevance.

Book value: what the company’s balance sheet says

The book value (or net asset value) shows you the company’s net worth according to its accounting. It is calculated by subtracting liabilities from assets and dividing the result by the number of shares issued.

For example, if an industrial company has assets worth €7,500,000, liabilities of €2,410,000, and has issued 580,000 shares, its book value would be approximately €8.77 per share.

This value is especially useful for value investors because it allows you to compare whether the current share price is below, in line, or above what the company’s balance sheet suggests it should be worth.

Market value: what the market is willing to pay

Market value is simply the price at which the stock is traded on the exchange. It is obtained by dividing the company’s total market capitalization by the number of shares outstanding.

If a company has a market capitalization of €6,940 million and 3,020,000 shares issued, the market value would be approximately €2.30 per share.

Unlike the other two values, the market value constantly changes according to real-time supply and demand.

What information each one really provides

The difference among these three values is not only in how they are calculated but also in what they tell you about a stock.

The nominal value is mainly historical. It shows the initial price when the shares were issued, but little else. In fixed income, it has more utility because bonds have a maturity date. In stocks, its use is limited.

The book value reveals the strength of the balance sheet. A low ratio between market price and book value (known as P/B) suggests the stock is undervalued according to accounting. A high ratio indicates potential overvaluation. This works well for companies with tangible assets (banks, construction firms, gas companies), but can distort for tech and small-cap companies with many intangible assets.

Market value, on the other hand, simply tells you at what price it is being traded. It does not tell you if it is expensive or cheap, only what the real price is. To determine if it is attractive, you need to complement it with ratios like the PER (Price to Earnings Ratio) or a full fundamental analysis.

How to use each in your investment strategy

The practical use of the nominal value

Although the nominal value has little use in daily operations, it remains important in certain contexts. In convertible bonds, for example, a conversion price is set that acts as a “reference nominal value.” This predetermined price allows you to know at what value you could convert your fixed income investment into stocks in the future.

The book value and value investing

If your strategy focuses on finding undervalued companies, the book value is your ally. Value investors look for companies with strong balance sheets and solid business models trading below their book value.

The logic is simple: invest if the balance sheet is strong, the business is viable, and the current price is below the level justified by the balance sheet.

Let’s take an example with two energy service companies. Comparing their P/B ratios:

• Company A: P/B of 0.85
• Company B: P/B of 1.20

Company A is cheaper relative to its book value, making it more attractive under the value investing philosophy. However, remember that a single ratio should not determine your decision; you should evaluate multiple factors.

The market value: your daily reference

Market value is what you see on your quotation screen daily. It results from the intersection of buy and sell orders and is the only reference that matters when you want to enter or exit a position.

When setting a take-profit on a purchase or a stop-loss, you do so based on the market value. When you want to buy at a specific price during a dip, you set a limit buy order based on the projected market value.

Keep in mind that stocks have specific trading hours depending on their market:

• Major European markets: 09:00 - 17:30 Spanish time
• United States: 15:30 - 22:00 Spanish time
• Japan: 02:00 - 08:00 Spanish time
• China: 03:30 - 09:30 Spanish time

Outside these hours, you can only place pre-set orders. If the price reaches your level during the next session, they will be executed automatically.

The limitations you need to know

Each method has specific weaknesses you need to understand.

The nominal value is practically obsolete for equity trading. Its interpretive horizon is very short and it provides little useful information about the current state of a company.

The book value fails when valuing companies with many intangible assets (intellectual property, brands, software). It can also be distorted by creative accounting practices. In tech and small-cap companies, this value often does not reflect the reality of the business.

Market value is saturated with noise. It reacts to monetary policy announcements, sector-specific relevant events, changes in macroeconomic expectations, and often to speculative bubbles without fundamental basis. The market can discount or overinterpret data, leading the price away from what fundamental analysis would justify.

How to use each value together

The key is not to rely on a single indicator. These three values are complementary tools:

Use the nominal value to understand the historical starting point and, if applicable, to evaluate convertible bonds.

Use the book value as an initial filter in your search for undervalued stocks, but always verify with additional analysis.

Use the market value as your operational reference and as a basis to calculate other indicators (PER, dividend yield, etc.) that will tell you whether the price is attractive or not.

A stock can have a low book value, an outdated irrelevant nominal value, and a market value that has risen 300% in a year due to future expectations. All three data points are correct but tell different stories about the same asset.

Conclusion: the importance of correct interpretation

There is no single “correct price” for a stock. The nominal, book, and market values are three different perspectives that answer different questions.

The most common mistake is clinging to a single ratio without context. Never use the P/B as the sole decision criterion. Never ignore the market value because you believe it is “wrong” according to the balance sheet. Successful investing requires combining these metrics with fundamental analysis, technical indicators, and proper risk management.

Understand what each value means, when to apply it, and above all, what its limitations are. With this solid foundation, you will be better prepared to make more informed investment decisions.