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Market Value or OMV (Open Market Valuation)
OMV is the price an asset would get in the marketplace, or the value the investment community gives to particular equity or business.
Market value is also used to refer to the market capitalization of a publicly-traded company. It is calculated by multiplying the number of its outstanding shares by the current share price.
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Understanding Market Value
A company's market value is a good indication of how investors perceive a business.
Market value is determined by the valuations or multiples accorded by investors to companies, including price-to-sales, price-to-earnings, enterprise value-to-EBITDA, etc. The higher the valuations, the bigger the market value.
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The Dynamic Nature of Market Values
- Market value is influenced by the business cycle and can fluctuate over periods of time. Market values decrease during recessions (bear markets) and rise during economic expansions (bull markets).
- Market value also depends on the sector in which the company operates, its profitability, debt load, and the broad market environment.
- Market value for a firm may be very different from book value or shareholders' equity. A stock will be considered undervalued if its market value is well below book value. It does not mean that a stock is overvalued if it is trading at a premium to book value - it again depends on the sector and the extent of the premium compared to the stock's peers.
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