Can a share price drop to 0?

This is a preconceived idea among novice traders. In their mind, a stock market share can lose all its value in the event of a stock market crash, for example. The trader thinks that if the price of a stock can drop 30% or 40% in a single day, why can’t it drop 100%? Well that’s impossible! The value of a share cannot drop to 0 rupees. For a neophyte on the stock markets, it is often difficult to understand it, especially since the reverse, ie the share price which takes 100% during the day, is possible.

Distinction between value and price of a share

We must not confuse the value and the price of a stock.

The value of a stock is an estimate of what the company linked to the stock is really worth. To calculate the real value of a stock, we do a financial analysis. We study the balance sheet, the income statement, the financial ratios. We try to give a value to a company according to what it has (assets: cash, stocks, real estate assets …) and what it owes (liabilities: debts, equity … ). One can also calculate the value of a stock based on its cash flow or various financial ratios. To find out more, I invite you to consult the article: Methods of valuation of a share .

The price of a stock gives it the estimated value of the stock by the market. By multiplying the share price by the number of shares in circulation, we get the market capitalization . It is the market value . The market does not estimate the present value, it tries more to estimate the future value of the stock.

If the market value is greater than the actual value, the stock is said to be overvalued. Conversely, if the market value is lower than the real value, we say that the stock is undervalued.

Can the value of an action be equal to 0?

In order for the value of a share to be equal to 0, the company must go bankrupt. In this case, the company ceases to quote on the financial markets. This does not mean that its market value (the share price) is 0, just that it is no longer possible to buy or sell shares of that company.

However, even in the event of bankruptcy, the company linked to the share is often still valuable. Indeed, the company owns goods (machines, buildings …) which have value and can be resold. Once the debts have been repaid, shareholders can sometimes recover part of their contribution. In the event that the company finds a buyer, the buyer always pays symbolic 1 Euro to buy the

Can the price of a share be equal to 0?

The price of a share can fall sharply, sometimes for a very long period, but in no case can it be equal to 0. It is however possible that its quotation is temporarily suspended (in the event of a too sudden fall in the price). of the share) or that the share is withdrawn from the quotation (due to bankruptcy or as part of a share buyback by the main shareholder).

The stock price may also continue to fall perpetually but under no circumstances can the stock price reach 0 as long as the stock continues to price. The price of a stock can fall by 99.9999% but not by 100%. The price can for example go from 100 Rs to 0.01 Rs. When the stock quotes Rs 0.01 , it can continue to fall and lose 99.99% of its value and quote Rs 0.0001  and so on … but in no case is the market value of the stock equal to 0. One publicly traded stock always has value. It’s the same principle for real estate. Its value can drop sharply, but as long as the good is not destroyed, it still has value.

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