€5 versus €500: Which Stock Is Cheaper?
Opening question: one share costs €5, another costs €500. Which company is worth more? You can't tell yet.
Why this matters for beginners
Beginners often buy low-priced shares thinking they are bargains. The share price alone hides the size of the company. This is general education, not personal advice.
Main explanation
A share price is the cost of one slice of a company. How many slices exist matters just as much.
Market capitalization = share price × shares outstanding. It is what the market values all the shares at together.
Fictional Penny Mills: €5 per share × 2,000 million shares = €10,000 million market cap.
Fictional Grand Tools: €500 per share × 10 million shares = €5,000 million market cap. The €5 share belongs to the company that is twice as large.
Market cap measures the market value of the equity. It does not tell you whether the stock is a bargain; that depends on profits, debt and prospects.
Example using a real company
Penny Mills (fictional) at €5 is valued at €10 billion, double Grand Tools (fictional) at €500.
- →€5 × 2,000m shares = €10,000m.
- →€500 × 10m shares = €5,000m.
Common beginner mistakes
- ✕Calling a share cheap because its price is low.
- ✕Treating market cap as proof a stock is good value.
Key terms
- Shares outstanding
- The total number of shares a company has issued to investors.
- Market capitalization
- Share price multiplied by shares outstanding: the market value of the equity.
Key takeaways
- 01Compare companies by market cap, not share price.
- 02Market cap shows size, not whether something is a bargain.
Check yourself
- 01Penny Mills trades at €5 with 2,000m shares. What is its market cap?
- 02Grand Tools trades at €500 with 10m shares. Which company is larger?
- 03Does a large market cap mean a stock is a bargain?
Try the concept on a real company
Open a company in the Analyzer and compare its market cap, not its share price, with a rival.
Educational examples only. Not buy or sell recommendations.