Market value per share

Market value per share is the price at which a share of company stock can be acquired in the marketplace, such as on a stock exchange. Value investors closely follow this figure to determine when it makes sense to acquire shares at a sufficiently low price. An issuing company's treasurer also tracks the market price to determine when the price is high enough to justify a new stock issuance that maximizes the amount of cash raised by the entity in proportion to the number of shares sold. A business can establish a floor for its stock price by creating a stock buyback program that acquires shares on the open market whenever the market price drops below a certain threshold level.

The market value per share is influenced by a number of factors, including the following:

  • Reported income of the issuing entity
  • Reported cash flows of the issuing entity
  • Existence of a stock buyback program
  • Investor perceptions of the future prospects of an issuing entity
  • Investor perceptions of the future prospects of the issuing entity's industry, and of the economy as a whole

The market value of a share can be suspect when few shares are available for sale and/or a company does not list its shares on a stock exchange. In this case, share prices can vary wildly on just a few small trades. This situation makes it easier for individuals to engage in fraud by making a few small trades to ramp up the market value per share, which they then use to sell larger blocks of shares to unsuspecting investors at the inflated prices.

Related Courses

Business Ratios Guidebook 
The Interpretation of Financial Statements