The deal costs $5. Is that cheap or expensive?
I saw a deal for $5.
First thought:
“Oh, cheap. You can buy a lot.”
And now a different company.
Its stock costs $500.
Which one is cheaper?
In fact, you can’t tell by these numbers.
Why?
Because it’s not only the price of one share that matters, but also how many shares the company has issued.
For example:
Company A:
1 billion shares × $5 = $5 billion
Company B:
10 million shares × $500 = $5 billion
One share costs $5, the other — $500.
But the market valuation of both companies is the same — $5 billion.
That’s why the statement:
“The stock only costs $5, so it’s cheap”
doesn’t work.
The same goes for a $500 stock—it’s not necessarily expensive.
To value a company, you need to look further: at its market capitalization, financial performance, prospects, and how the market values it.
The price of one share is only one number.
It doesn’t say how expensively the entire company is valued.
#TradFi
I saw a deal for $5.
First thought:
“Oh, cheap. You can buy a lot.”
And now a different company.
Its stock costs $500.
Which one is cheaper?
In fact, you can’t tell by these numbers.
Why?
Because it’s not only the price of one share that matters, but also how many shares the company has issued.
For example:
Company A:
1 billion shares × $5 = $5 billion
Company B:
10 million shares × $500 = $5 billion
One share costs $5, the other — $500.
But the market valuation of both companies is the same — $5 billion.
That’s why the statement:
“The stock only costs $5, so it’s cheap”
doesn’t work.
The same goes for a $500 stock—it’s not necessarily expensive.
To value a company, you need to look further: at its market capitalization, financial performance, prospects, and how the market values it.
The price of one share is only one number.
It doesn’t say how expensively the entire company is valued.
#TradFi
