Stock Value and Stock Price

In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool analysts Jason Moser and Brendan Mathews take a question from a reader who asks: "What is a normal or decent price for buying and selling a stock? I'm new to this and need some advice from experienced Fools out there."

One of the biggest challenges for new investors is learning to understand the difference between price and value. Just because a stock looks expensive in absolute dollars doesn't mean it's expensive in relation to its actual value. Jason uses Markel and Whole Foods as examples of stocks that look like they may be good values in relation to their earnings potential. Conversely, a stock that looks cheap in absolute dollars may actually be expensive in relation to its earnings potential. Brendan uses Groupon here as an example. So learning how stocks are valued using metrics including price-to-earnings, book value, and free cash flow can help investors determine which stocks look like the best opportunities today.

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Brendan Mathews owns shares of Markel. Jason Moser owns shares of Markel and Whole Foods Market. The Motley Fool recommends and owns shares of Markel and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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