Why the price of one share says nothing about the company

Comparing securities by the price of a single unit is the most common and the most quickly corrected mistake. Seeing once what the price is made of is enough.

Capitalisation, not price

The value of a whole company is the price of one share multiplied by the number of shares.

The same company can be divided into a million shares or a billion. In the first case the share is expensive, in the second it is cheap, and the company is exactly the same.

What a split does

Splitting shares increases their number and reduces the price of each proportionally. At the moment of the split the owner becomes neither richer nor poorer: more securities at a lower price.

How to compare properly

Not by price but by the ratio of price to something from the accounts — profit, revenue, equity. That is what multiples are for:

3,70

The details are in P/E: what it is and why low does not mean cheap.

A note on lots

Securities trade in lots on the exchange, and a lot may contain more than one share. That is another layer between the price on screen and the sum you will actually pay — and it has nothing to do with valuing the company either.

What to remember

Calling a share expensive or cheap is meaningless without relating it to business results. The only thing a three-digit or four-digit price tells you is how many shares were issued. On where to find the underlying data, see Where to find a Russian company's accounts.