Are companies with higher share prices worth more than their counterparts with lower share prices?

This is a common misconception that I have heard many times. By simply saying “British American Tobacco is trading at £41 per share”, people who have not had much market experience will reply with “well that sounds expensive”.

In reality the share price is no reflection on the value of the company itself. You need to take into account the number of shares in issue, which when multiplied by the share price, gives you a value which is known as the Market Capitalisation (Market Cap).

For example, British online fashion and beauty store ASOS has a share price of £65 whereas BP, which is the world's sixth-largest oil and gas company, has a share price of £5. But, when you dig into the numbers, you will see that BP has nearly 20 billion shares in issue whereas ASOS has only has 83.6million. Therefore BP has a Market Cap of £100billion and ASOS is worth a ‘mere’ £5.4billion.

It is also interesting to compare the share prices in the UK compared to those in America. At the time of writing, the average share price of a stock in the FTSE 100 is £17.72 whereas the average share price of a stock traded on the Dow Jones is $118.50.

This purely comes down to cultural differences; British people tend to prefer to have more shares with a smaller share price whereas Americans tend to prefer to have fewer shares with a higher share price.

After all, holding 10million shares in a small African gold miner sounds far more impressive than holding 1 Berkshire Hathaway A share…until you realise 1 Berkshire Hathaway A share will cost you $300,000 and 10million shares in a small African gold miner only costs £3,000!