Ndubuisi 'Andy' Egwim explains why stock price and intrinsic value are different. The market votes on price, not worth. If a stock trades at £50 per share but has £5 book value per share, you're betting the business will grow tenfold to justify that price.
£5 million
1 million shares
£5 per share
£50 per share
10× book value
Price is not the value. The price is determined by the market. The market is a voting machine, not a weighing machine. The market is just determining. This is the price of this stock, not necessarily the value. Does that make sense? So the value, according to what we determine here, is that the book value is £5 million for all the shares. And because there are 1 million shares there, each of those shares, one by one, is five pounds. So if somebody comes to sell it to me at £50, I'm going to say, hang on, hang on, why should I buy £50? What are the hospitals selling for? And then what is my guarantee that this hospital, if I buy it at £50, that means I'm expecting that the hospital is going to go from £5 million to £50 million, and even better in the future because they are buying it at 10 times the book value.
