Stock Value Versus Stock Price

In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool analysts Jason Moser and Brendan Mathews take a question from a reader who asks: "What is a normal or decent price for buying and selling a stock? I'm new to this and need some advice from experienced Fools out there.”

One of the biggest challenges for new investors is learning to understand the difference between price and value. Just because a stock looks expensive in absolute dollars doesn’t mean it’s expensive in relation to its actual value. Jason uses Markel and Whole Foods as examples of stocks that look like they may be good values in relation to their earnings potential. Conversely, a stock that looks cheap in absolute dollars may actually be expensive in relation to its earnings potential. Brendan uses Groupon here as an example. So learning how stocks are valued using metrics including price-to-earnings, book value, and free cash flow can help investors determine which stocks look like the best opportunities today.

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