Why a $500 Stock Can Be a Better Deal Than a $50 Stock

Don’t Let the Price Fool You

A friend once told me they couldn’t buy Netflix because it was trading over a thousand dollars per share. They said they couldn’t afford it with their small $500 account.

That’s a common way of thinking, and it sounds reasonable at first. But here’s the truth: the share price doesn’t tell you whether a stock is expensive or cheap. What really matters is what you get for the money you invest, not how many shares you own.

Picture This: Two Stocks, Same $500

Let’s say you have $500 to invest and you’re choosing between two companies:

• Stock A: Costs $500 per share and earns $50 per share in profit.
• Stock B: Costs $50 per share and earns $1 per share in profit.

If you invest $500, you could buy:

• 1 share of Stock A
• 10 shares of Stock B

At first glance, Stock B looks “cheaper,” but let’s dig deeper.

Understanding the P/E Ratio (in plain terms)

The P/E ratio stands for Price-to-Earnings. It shows how many dollars you’re paying for every $1 of a company’s yearly earnings.

• Stock A: $500 ÷ $50 = 10 P/E
• Stock B: $50 ÷ $1 = 50 P/E

So if you buy Stock A, you’re paying $10 for every $1 the company earns. With Stock B, you’re paying $50 for every $1 it earns.

The P (price) part of the ratio is what you see on your screen, the share price. The E (earnings) part is what the company actually makes per share. Together, they show how much future profit the market expects from that business.

A high P/E means investors are paying more because they expect faster growth. A lower P/E often means you’re getting more earnings for your dollar today, making it the better value.

Even though Stock B’s price tag is lower, you’re actually paying five times more for its earnings. In simple terms, Stock A gives you more earnings power for your money.

Now That We Know What We’re Paying For…

Let’s see how that affects your returns.

If both companies grow profits by 10% next year:

• Stock A’s earnings go from $50 to $55
• Stock B’s earnings go from $1 to $1.10

If the market values them the same way (same P/E), their stock prices would likely rise 10% too:

• Stock A moves from $500 to $550
• Stock B moves from $50 to $55

So whether you bought 1 share or 10 shares, your $500 investment grew by 10%, to $550.

This is the key idea: your return depends on the company’s performance.

Fractional Shares Changed Everything

In the old days, you really did need enough money to buy a full share. If a company traded at $1,000, that was out of reach.

But today, most brokerages let you buy fractional shares. That means you can invest any dollar amount, even $10 or $50, into any stock, no matter the price per share.

So if you have a small account, you can still buy into great companies like Apple, Amazon, or Netflix. You don’t need to wait for them to “drop under $100.”

You can start with what you have and grow from there. A 10% return is a 10% return, your $500 still turns into $550, whether it’s in a $50 stock or a $500 stock. The difference is that the stock trading at a lower P/E is actually cheaper, because you’re paying less for each dollar of growth.

Building Wealth Starts With the Right Mindset

When your account is small, every dollar matters. The best way to grow it isn’t chasing low-priced stocks, it’s owning quality companies that consistently make money and grow.

Think of it like planting crops:

• A handful of healthy seeds can grow into a strong harvest.
• A whole bag of bad seeds still won’t produce much.

Buy good businesses, even if you can only afford a small slice. Over time, steady returns from strong companies are what build real wealth.

The Takeaway

Don’t judge a stock by its price tag. Judge it by what it earns, how it grows, and how much you’re paying for those earnings.

Fractional shares mean you can own any company, no matter your account size.
Focus on returns, not share counts, and your money will start working smarter for you.