How to choose the right metric: nominal value, book value, and market value in your investment strategy

Confused by the different prices you see for the same stock? You’re not alone. Every day, millions of investors work with three completely different measures of value: nominal value, book value, and market value. Although they may seem interchangeable, each tells a different story about a company’s financial health. In this guide, we will break down the differences between each, when to use them, and—most importantly—how to avoid costly mistakes when choosing one over the other.

Deciphering the three fundamental values

Nominal value: the starting point that almost no one uses

Nominal value is probably the simplest metric, but also the least useful in modern markets. It is calculated by dividing the company’s share capital by the total number of shares issued. Essentially, it represents the theoretical price at which a share is issued in the market.

Let’s take a practical example. If BUBETA S.A. has a share capital of €6,500,000 and issues 500,000 shares at IPO, the calculation would be: €6,500,000 ÷ 500,000 = €13 per share. That is the nominal value.

Why do almost no investors use it in equity trading? Because after the initial issuance, this value becomes practically irrelevant. Shares have no expiration date, so they do not revert to their original nominal value. Nominal value is much more important in fixed income—where bonds do return to their nominal value at maturity—but in stocks, it’s mostly a historical data point.

Book value: the fundamental analyst’s compass

Here things get interesting. The book value (also called net asset value or BV) is obtained by subtracting liabilities from assets and dividing the result by the number of shares outstanding. This tells you: how much is the company worth in purely accounting terms?

Suppose MOYOTO S.A. has assets worth €7,500,000, liabilities of €2,410,000, and 580,000 shares issued. The calculation would be: ((7,500,000 € - 2,410,000 €)) ÷ 580,000 = €8.78 per share.

Book value is essential for investors practicing value investing—the approach popularized by Warren Buffett that seeks to “buy good companies at a good price.” The method works like this: if the market price is below the book value (meaning the Price/Book ratio is low), the stock could be undervalued. If it’s significantly above, it might be overvalued.

However—here’s an important trap—book value works best with traditional companies—banks, construction firms, utilities—where most of the value resides in tangible assets. It fails spectacularly with tech companies and small caps (small caps), where the real value comes from intangible assets like patents, brands, and talent. Additionally, creative accounting can distort these numbers, so you should never rely solely on one metric.

Market value: what investors are really paying

Market value is what you see every day on your trading platform. It is calculated by dividing the market capitalization by the number of shares. Take OCSOB S.A., with a market cap of €6.94 billion and 3,020,000 shares: €6.94 billion ÷ 3,020,000 = €2,298 per share.

This is the actual price at which you buy and sell. While book value tells you “what the company should be worth according to its books,” market value tells you “what the market is willing to pay right now.” And here lies the big difference: the market can be completely disconnected from the company’s financial reality.

An announcement about interest rate policy, a sector regulation change, a rumor about a country’s economy, or simply a speculative bubble in the sector can push the market value far from any real fundamentals. Price is determined by the intersection of buy and sell orders, not by logic or reason.

How to use each metric in your actual trading

Value investing strategy: leveraging book value

If your style is to seek gains, book value is your ally. Imagine you want to invest in a utility company in the IBEX 35 but don’t know which one to choose. You compare the Price/Book ratio (P/BV) of ENAGAS and NATURGY. If ENAGAS has a lower P/BV, it means it’s “cheaper” relative to its book value. This doesn’t guarantee it’s a better investment, but it’s a good first filter.

However—and here’s the important caveat—never base your decision solely on one ratio. The P/BV ratio should be used alongside other indicators like PER, EPS, fundamental analysis, and a thorough study of the business model. Smart investing requires a holistic view, not a single metric.

Day trading: mastering market value

When you trade actively, market value is your main tool. It’s what you see in real time on your trading platform. If you want to buy META PLATFORMS after a sharp drop, and it closes the day at $113.02, you can set a limit buy order at $109.00 expecting it to fall further.

This is where trading hours matter. In Spain and Europe, the trading hours are from 09:00 to 17:30. In the US, from 15:30 to 22:00. In Japan, from 02:00 to 08:00. Outside these hours, you can only place pre-set orders that will execute if the market reaches them.

Market value also determines your take-profit and stop-loss levels. If your goal is to sell at a higher price, you set a sell limit. If you’re trading short, do the opposite. The market is relentless: if the price never hits your order, it simply doesn’t execute.

Convertible bonds: the special case of modern “nominal value”

Here there is an interesting gray area. Convertible bonds are securities that pay periodic interest and, at maturity, instead of returning the principal, give you shares at a pre-set price. That price acts as a “reference nominal value,” although it is calculated through complex formulas specific to each issuance.

For example, when IAG issued convertible bonds in May 2021, the conversion price was a percentage of the average share price over a certain period. It’s not traditional nominal value, but it functions similarly: it establishes a known reference point in advance that guides the future.

The real limitations of each method

Nominal value: practically useless after the first day

Its main weakness is that it ages instantly. After the initial issuance, it loses all relevance in equity markets. It offers little value for daily trading or fundamental analysis. It’s a relic from the early days of the stock market.

Book value: imperfect but valuable

Its limitations are more subtle. First, it fails with sectors where intangible assets dominate: technology, biotech, media. A software giant may have a low book value but be worth much more due to patents and market position.

Second, accountants can manipulate numbers. Creative accounting isn’t illegal if it complies with regulations, but it can distort the book value. Third, it ignores strategic factors such as management quality, innovation capacity, or sector competitiveness.

Market value: too emotional

Market value is deeply volatile because it incorporates expectations, sentiments, and uncertainty. A change in monetary policy can impact the entire stock market, even if nothing fundamentally has changed in that company. Sector euphoria can irrationally revalue all stocks in the sector. Bad macroeconomic news can crush prices regardless of company results.

In summary: market value can be completely disconnected from reality. And that is both its greatest strength and its biggest weakness.

Quick summary: when to use each

The conclusion: context is everything

These three values do not compete; they complement each other. The most common mistake is clinging to one and ignoring the other two.

An intelligent investor uses book value to identify long-term opportunities where market price is disconnected from reality. Then uses market value to execute the trade at the right moment. And keeps nominal value in mind only as a historical curiosity.

The key is not memorizing formulas but understanding what each measures and when to apply it. Investing is not about blindly following ratios but interpreting the full context: Is the company solid? Is the price fair? What is my time horizon? What is happening in the economy?

When you master this trio of metrics and understand their limitations, you will have taken a giant step toward smarter and more profitable investment decisions.