When you buy a stock you’re buying a slice of a real business, not a lottery ticket. A share’s worth comes from the company behind it — and the price on the screen (what people pay today) is not the same thing as the value (what the business is actually worth).
The price is the last figure someone was willing to pay for a share — it changes every second, driven by mood, news and demand. The value is what the underlying business is actually worth, based on what it owns and earns. Usually the two are close; sometimes they drift far apart. Valuation is the toolkit for forming your own view of value, so the price stops being the only number you have.
Market capitalisation (“market cap”) is the share price times the total number of shares — what the market is paying for all of the company, not just one share. It’s why the share price alone can’t tell you if a stock is cheap: a $500 share isn’t expensive and a $5 share isn’t cheap until you know how many shares exist and what the business earns.
Example (illustrative): a company has issued 1,000,000 shares at $50 each, so its market cap is 1,000,000 × $50 = $50,000,000. If you think the business is really worth more than that, you’d call it undervalued; if less, overvalued. These figures are just arithmetic to make the idea concrete — not a real company, a recommendation, or a prediction of any return.
Every other lesson in this path is a different lens on one question: is this business worth more or less than the price tag the market has put on it? You’ll rarely get a single correct number — and this path never hands you one — but you’ll be able to tell a rich, durable business from an expensive story, which is most of the battle.
This lesson is general investor education, not personalized investment advice. The $50 million market-cap figure is illustrative arithmetic to show the idea, not a real company, a recommendation, or a prediction of any return. Valuation never yields one “correct” number — it’s a way to form your own view of value versus price.
Not necessarily — the share price alone tells you almost nothing. What matters is the market cap (price times the number of shares) relative to what the business earns and owns. A high-priced share with very few shares can be worth less than a low-priced share with billions outstanding.
The price is set moment to moment by supply and demand — mood, news, hype and fear all move it. The value is grounded in what the business actually earns and owns. They’re usually close, but popularity or panic can push a price well above or below a reasonable estimate of value. This path teaches you to form that estimate.
No. Market cap only tells you how much the whole company is priced at right now, not whether that price is fair. A large, expensive company can be a worse deal than a smaller one, and vice versa. Valuation is about comparing that price to the underlying business.
Investor education only — not investment advice, and never a promise of profit. Every investment can lose value.