The right price for a stock is what someone is willing to pay for it.
That's the simple answer. The more complicated answer is that we have a range of prices that people are willing to buy at and a range of prices that people are willing to sell at, and the market connects them.
The longer answer is the CAPM model. The inventors of this won the Nobel prize.
You (and everyone else in the market) will pay for a stock what it will be worth in the future. Over time, the profits will be returned to stockholders through dividends or through stock buybacks. If you do a calculation for what you expect the present value of a future flow of payments to be, adjusted based on what you think the chances of actually getting those payments are, then you have the CAPM model. (I'm simplifying it, obviously.)
Present value is the value now of a payment in the future. Would you rather have $9 today or $10 tomorrow? If you value those the same, then $9 is the current value of $10 tomorrow.
If the actual price of the physical property of the company (the liquidation value) is more than the current value of future dividends, then the liquidation value of the company is the value, and the company will be liquidated. If the value of the office building that you own is higher than the value of what you're using it for, then you should just sell it. On your books, the value of the office building might not match the actual market value that your real estate appraiser assigns, and it is the actual market value that matters. That's what you could actually sell it for.
To complicate things, the current (and future) profits are calculated to include the costs, which include the use of assets like the building, which are based on book value.
This is the subject of an entire course or two in finance.
The Value Investing Guru Benjamin Graham insisted on a 50% margin of safety. When we calculate the Margin of Safety, we take various factors into consideration, such as exchange rate fluctuations, management credibility etc. which affect the company. When these risks are higher, we would like to buy shares at a heftier discount on the MRP. The Stock Market does provide opportunities to buy at heavy discounts; however we need to patiently wait for the right moment.
The intrinsic value
http://bc.vc/omYmx5
Is it book value, liquidation value or simply its market price at a given moment in time? Would you value a privately-owned company where there is no market value differently than a publicly owned company where there is a market price every day? Is there a difference between "price" and "value". I am sure this is a lot deeper question then I would think.
