It’s Not About the Price: Understanding the Difference Between Share Price and Share Value

Introduction

The other day, a friend of mine asked, "Why should I buy one expensive share when I can get ten cheap ones for the same price? "It’s a question I’ve heard more times than I can count—and honestly, it's a fair one. At first glance, buying more shares of a cheaper stock feels like you’re getting a better deal. It feels like more value. But investing isn’t shopping at a sale—and that’s where the real confusion begins.

In this blog, we’ll unpack why the market price of a share doesn’t determine its worth. We’ll also explore what face value is and the key factors to consider before buying any stock, cheap or expensive. Let’s break down the myths and make smarter investing choices together.

Face value vs Market price

Face value (also called par value or nominal value) is the original value of a share as decided by the company when it is created. It is not the market price. The face value is a static number, and it serves more as a base or reference for accounting purposes.

For example, if a company issue shares with a face value of ₹10, that’s the base value assigned to each share. Over time, the share’s market price may rise or fall based on the company’s performance, demand, investor sentiment, and other market factors, but the face value usually stays the same unless there’s a stock split.

So why does face value matter?

• Dividends: If a company declares a dividend of 200%, it means 200% of the face value (not the market value). So, for a ₹10 face value share, that’s ₹20.

• Stock Splits: When companies split their shares, they divide the face value (e.g., from ₹10 to ₹5), increasing the number of shares in circulation.

• Accounting & Reporting: Face value helps companies maintain and track their capital structure.

  
  

Market price is the current price at which a share is bought or sold on the stock exchange. Unlike face value, which is fixed by the company, the market price keeps changing constantly during trading hours!

It reflects what investors are willing to pay for that share based on their expectations of the company’s future performance.

So why does market price matter?

1. Buy & Sell Decisions: Investors use the market price to decide whether it’s the right time to buy or sell a stock.

2. Market Capitalization: Market price × number of outstanding shares, which tells you how big a company is (Large-cap, Mid-cap, Small-cap).

3. Valuation Ratios:

   • P/E Ratio (Price/Earnings) = Market price ÷ Earnings per share

   • P/B Ratio (Price/Book Value) = Market price ÷ Book value per share

     These help in comparing if a stock is overvalued or undervalued.

   
   

Difference Between Share Price and Share Value

Share price is simply the amount you pay to buy a single share on the stock market. It fluctuates every day based on demand, company performance, and investor sentiment. The difference between share price and share value lies in understanding that share value considers the company’s earnings, assets, and growth potential, which give a clearer picture of a stock’s true worth. Understanding this difference helps you avoid getting fooled by a low price tag and instead focus on what the stock truly offers.

Capital structure

Capital structure refers to the way a company finances its overall operations and growth. In other words, it raises money to run and expand the business. It shows the mix of debt and equity a company uses to fund its activities.

The Two Main Components of Capital Structure:

1. Equity Capital - Money raised from shareholders by issuing shares.

   Includes:

   • Share capital

   • Retained earnings (profits reinvested in the company)

     
     

2. Debt Capital - Money borrowed from outside sources like banks, bondholders, or NBFCs. This needs to be repaid with interest.

   
   

Example: Let’s say a company needs to raise ₹10 crore.

₹6 crore by issuing shares (equity)

₹4 crore through loans (debt)

So, the capital structure is 60% equity and 40% debt.

How to Evaluate a Stock

Point 1: EPS & P/E Ratio – What They Reveal About a Stock’s Real Worth

When investors look beyond the market price, two of the most important metrics they use are:

• EPS (Earnings Per Share)

• P/E Ratio (Price to Earnings Ratio)

“Am I paying too much for this stock, or is it a hidden gem?”

What is EPS?

EPS = Net Profit / Total Number of Shares

It tells you how much profit the company is earning per share.

So, if a company earns ₹1 crore in profit and has 1 crore shares, the EPS is ₹1. Higher EPS generally indicates a more profitable company (per share).

What is the P/E Ratio?

P/E Ratio = Market Price of Share / EPS

P/E Ratio tells you how much the market is willing to pay for ₹1 of the company’s earnings.

Example: If a company’s EPS is ₹10 and the market price is ₹200, P/E = 200 ÷ 10 = 20x.

It means investors are paying ₹20 for every ₹1 of earnings.

So, when is a stock overvalued or undervalued?

Scenario	Meaning
High P/E Ratio (compared to peers)	Investors expect high future growth. It could be overvalued if the company doesn’t deliver.
Low P/E Ratio (compared to peers)	Might be undervalued — maybe a good deal if the fundamentals are strong.

Example Comparison:

Company	EPS	Market Price	P/E Ratio	Verdict
Company X	₹10	₹100	10x	Might be undervalued
Company Y	₹2	₹120	60x	Highly valued— investors are pricing in future growth

If Company Y fails to grow as expected, the price might crash. But if it succeeds, it could become a multi-bagger.

Point 2: Don't Judge a Stock by Its Sticker Price

Meet Company A and Company B

Feature	Company A	Company B
Face Value (FV)	₹10	₹1
Equity Capital	10 Crore	10 Crore
Total Shares Issued	(₹10 Crore÷ ₹10) 1 Crore shares	(₹10 Crore÷ ₹1) 10 Crore shares
Total Net Profit (PAT)	₹1 Crore	₹1 Crore
Market Price	₹200	₹20
Earnings Per Share (EPS)	₹1 (₹1 Cr ÷ 1 Cr)	₹0.1 (₹1 Cr ÷ 10 Cr)
P/E Ratio	200/1 = 200x	20/0.1 = 200x

Company B looks cheaper at ₹20 per share. But both companies:

• Earn the same profit

• Have the same P/E ratio (valuation)

• Just have different face values and capital structures. 

  That ₹20 stock isn’t a better deal than the ₹200 one—it’s just structured differently.

  
  

Point 3: Growth Drives Value – Not Just Current Profits

Let me take you through another common scenario.

Imagine two companies in the same industry—say, both in electric mobility or renewable energy.

🚘 Company X: The Experienced Giant

• In the market for over 20 years

• Consistent profits

• Slower, stable growth

• Already captured a big share of the market

  
  

⚡ Company Y: The New Challenger

• Entered the market 2–3 years ago

• Still growing rapidly

• Lower current profits, but higher future potential

• Introducing new-age solutions and tech

  
  

Even though Company Y is smaller and newer, its PE ratio might be higher than Company X, because investors are not just buying today’s earnings—they’re paying for tomorrow’s potential.

The market often rewards companies with higher expected growth by giving them a higher valuation (P/E ratio). This pushes the market price up, even if current earnings are low.

Example Snapshot:

Feature	Company X	Company Y
Face Value	₹1	₹1
Current Earnings (EPS)	₹20	₹5
P/E Ratio	15x	80x
Market Price	₹300	₹400

Even though Company Y earns much less, the market is willing to pay 80 times its earnings, because it believes in the future.

So next time you see a “costly” stock, don’t dismiss it—look deeper.

Ask yourself:  Is the market pricing in future growth?  Does this company have room to expand faster than its competitors?

Point 4: PEG Ratio – The Price Tag of Growth

So now you know about the P/E ratio, which tells you how much you’re paying for ₹1 of a company’s earnings.

But here’s a catch:

Two companies might have the same P/E ratio, but one is growing much faster than the other.

That’s where the PEG ratio comes in. It adds a critical missing piece to the puzzle—growth.

What is the PEG Ratio?

PEG = (P/E Ratio) ÷ (Earnings Growth Rate)

It helps you understand:

“How much am I paying for a company’s future growth?”

PEG Value	What It Suggests
< 1	Stock may be undervalued for its growth potential
= 1	Fairly valued (price matches growth)
> 1	Possibly overvalued unless growth accelerates

💡 Example:

Let’s say two companies have the same P/E ratio of 20:

Company A is growing earnings at 10% per year→ PEG = 20 ÷ 10 = 2.0

Company B is growing earnings at 25% per year→ PEG = 20 ÷ 25 = 0.8

➡ Even though both companies have the same P/E, Company B offers better value for its growth.

Why PEG Matters:

The PEG ratio allows you to look beyond the surface. It answers:

• Is this a high P/E stock because it deserves to be (fast growth)?

• Or is it just expensive with little growth to justify the price?

  
  

Conclusion: It's Not the Price Tag—It's the Value Behind It

In the world of investing, the number you see on a stock—₹20, ₹200, or ₹2,000—is just the price, not the value.

True investing wisdom lies in asking: "What am I getting for the price I’m paying?”

Throughout this blog, we’ve seen how:

• Face value is just a nominal figure for accounting, not an indicator of worth.

• Market price reflects sentiment and expectations, not just today’s performance.

• Two companies can have vastly different prices but offer the same earnings value.

• Metrics like EPS, P/E, and PEG ratios help decide whether you’re getting a good deal or just a shiny price tag.

• Growth, profitability, and capital structure matter far more than just how "cheap" or "expensive" a stock looks.

  
  

Bottom line: Don’t fall for the illusion of low prices. A ₹2,000 stock can be a bargain, while a ₹20 stock can be a trap.