What is 'At a Discount'

The phrase "at a discount" specifically refers to stock that is sold for less than its nominal or par value. It also refers to stocks or other securities that are sold below the present market value, similar to a sale on goods at a retail establishment.

The nominal or par value for a security, which is detailed in the company charter, is the minimum price that a stock of a particular class can be sold for upon an initial public offering. Most states have laws preventing companies from issuing stock at a price less than par.

BREAKING DOWN 'At a Discount'

The nominal or par value of a stock arguably has no relation to the market price. In fact, many stocks today are not even issued with a par value, and those that are often have values that do not in any way relate to the issuing price. For example, in 2012, Google's convertible preferred shares have a par value of $0.001 per share. Selling a stock below market value, on the other hand, is far more common and is typically done as a means of enticing buyers or creating buzz.

Why There Are Restrictions on Shares Sold at a Discount

Legal restrictions on selling at a discount were put into effect in part to better protect the creditors to the company because of the effect that such discounts could have. By selling shares below market value, a company’s capitalization could become deficient and leave it with a shortage of assets to pay its debts should the company lapse into default. Further, if shares are sold at a discount, those shareholders who buy the stock may face contingent liability to the creditors for the difference in price.

There are separate instances and contexts where a stock might be described as at a discount compared to its target price or a previous close. In such cases, the market value has dropped as part of the trading day cycle, but there is some expectation that it could rise again. Furthermore, it is possible for employees with certain stock options to purchase shares at a discount if they were granted the options early enough. The market value of the shares may have increased during the time it took for the options to become fully vested, but the employee is allowed to purchase the allotted shares at that lower price. In these examples, there is no legal barrier to the purchase and sale of such shares for a profit.

RELATED TERMS
  1. Discount

    In finance, discount refers to a situation when a bond is trading ...
  2. Bank Discount Rate

    The bank discount rate is the interest rate for short-term money-market ...
  3. Pull To Par

    Pull to par is the movement of a bond's price toward its face ...
  4. Share Capital

    Share capital refers to funds raised by issuing shares in return ...
  5. Discount Yield

    Discount yield is a measure of a bond's percentage return, frequently ...
  6. Unamortized Bond Discount

    An unamortized bond discount is a difference between the par ...
Related Articles
  1. Insurance

    Get Sale Prices On Healthcare With Discount Plans

    Medical discount plans can help the uninsured or underinsured afford better healthcare.
  2. Retirement

    Senior Discounts Alert: National Parks Pass Rises Aug. 28

    First, Social Security rose a measly 0.3%. Now, the national parks lifetime pass is going up 8 times. Yet another reason to save with senior discounts.
  3. Retirement

    Top Discounts For Seniors

    Here is a rundown of some of the best senior discounts across the country.
  4. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  5. Personal Finance

    9 Student Discounts You Shouldn't Miss

    College students can always stand to save some cash. Here are nine discount opportunities students should explore and exploit.
  6. Investing

    Know Your Cost Basis For Bonds

    Nobody likes taxes, but tax reporting is an inevitable and unavoidable part of investing. If you buy stock, determining your costs basis is a slightly frustrating but fairly straightforward exercise. ...
  7. Investing

    Take Advantage of Employee Stock Options

    If your employer offers stock options, they can contribute to your long-term financial success. Here's how.
  8. Investing

    The Difference Between Enterprise Value and Equity Value

    Enterprise value calculates a business’s current value, while equity value offers a snapshot of that business’s current and potential future value.
RELATED FAQS
  1. What are the disadvantages of using net present value as an investment criterion?

    While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... Read Answer >>
  2. Common examples of marketable securities

    Learn about marketable securities and the most common types of debt and equity securities, including common stock, bonds ... Read Answer >>
  3. What are the components of shareholder equity?

    Understanding company valuation figures, such as shareholder equity, is crucial in assessing a business. Read Answer >>
  4. What is the difference between the cost of capital and the discount rate?

    Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return ... Read Answer >>
Trading Center