What if everyone decided to sell all the shares at a given moment, let's say when the stock is trading at $40?
It would fall to the lowest bid price, which could be $0.01 if someone had that bid in place.
Here is an example which I happened to find online:
Notice there are orders to buy at half the market price and lower... probably all the way down to pennies. If there were enough selling activity to fill all of those bids you see, then the market price would be the lowest bid on the screen. Alternatively, the bid orders could be pulled (cancelled), which would also let the price free-fall to the lowest bid even if there were few actual sellers.
Bid-stuffing is what HFT (high frequency trading) algorithms sometimes do, which some say caused the Flash Crash of May 2010. The computers "stuff" bids into the order book, making it look like there is demand in order to trigger a market reaction, then they pull the bids to make the market fall. This sort of thing happens all the time and Nanex documents it http://www.nanex.net/FlashCrash/OngoingResearch.html
Quote stuffing defined: http://www.investopedia.com/terms/q/quote-stuffing.asp
I remember the day of the Flash Crash very well. I found this video on youtube of CNBC at that time. Watch from the 5:00 min mark on the video as Jim Cramer talks about PG easily not being worth the price of the market at that time. He said "Who cares?", "Its not a real price", "$49.25 bid for 50,000 shares if I were at my hedge fund." http://www.youtube.com/watch?v=86g4_w4j3jU
You can value a stock how you want, but its only actually worth what someone will give you for it.
Anadarko Petroleum, which as we noted in today's EOD post, lost $45 billion in market cap in 45 milliseconds (a collapse rate of $1 billion per millisecond), flash crashing from $90 all the way to an (allegedly illegal) stub quote of $0.01.
How 10,000 Contracts Crashed The Market: A Visual Deconstruction Of Last Night's E-Mini Flash Crash
Symantec Flash-Crash Destroys Over $1.5 Billion In Less Than A Second
This sort of thing happens so often, I don't pay much attention anymore.