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in BUS 4027W - Actuarial Risk Management by

What does it really mean for a share to trade at a discount to the net asset value?

1 Answer

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by (800 points)

The net asset value per share is \(\frac{\text{Assets}-\text{Liabilities}}{\text{No of shares in issue}}\), and it serves as a useful indication of the value of a share. 

If a share is trading at a discount to NAV, that means that the price the share is trading at, is lower than the NAV per share. 

What does this mean?

  1. It could mean that investors have negative sentiment towards the share. They expect that it will decrease in value soon. 
  2. It could be an opportunity for profit - if the market has priced a stock at \($9\) but its NAV is in fact \($10\), an investor might speculate and buy with the intention of selling when the price is trading at a higher price.
  3. It might just represent daily fluctuations in share price due to variations in supply and demand.