Is there a relationship between stock price and company value?Needless to say, I don’t know a lot about the stock market and have a very small portfolio. I assume that market cap is a measure of a company’s value. Nevertheless, I do not see any relationship between the price of a stock and the company offering it. For example, Apple (APPL – market cap: 2.3T) shares are about $140, while Hershey’s (HSY – market cap: 45.4B) shares are about $220, and NVR (market cap: 13.3B) shares are about $4,100 . How does this make sense? Why would I want to buy 1 share of NVR when I could buy 29 or so shares of Apple? I imagine that Travis and his subscribers can explain this to me if it doesn’t take up too much of your time. Or is the stock market just crazy?
This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.
The short answer is that stock price is essentially meaningless — it’s the overall market capitalization that matters, which you can think of as the price of the entire company. The per-share price is meaningless in company-to-company comparisons because each company is divided up into a different number of shares, there is nothing remotely “standard” about the number of slices into which a company is cut…
Therefore, when making comparisons, you have to compare the whole pie. Or use per-share numbers for earnings, cash flow and revenue.
Travis, thanks for replying so quickly and helping to me to understand a little bit more.