Like any other commodity, in the stock market, share prices also depend on many factors. So it’s hard to pinpoint just one or two factors that affect stock prices. There are still a few factors that directly influence stock prices.
demand and supply – This fundamental rule of economics is also valid for the stock market. The price is directly affected by the trend of stock trading. When more people buy a certain share, the price of that share increases and when more people sell the share, the price of that particular share falls. Now it is difficult to predict the market trend, but your stockbroker can give you a clear idea of the current market trend, but be careful before you blindly follow the advice.
News – The news is undoubtedly a very important factor when it comes to the price of shares. Positive news about a company can increase buying interest in the market, while a negative news release can ruin a stock’s outlook. Having said that, you should always remember that many times, despite good news, a stock may show minimal movement. It is the overall performance of the company that matters more than the news. It is always wise to adopt a wait and see policy in a volatile market or when there is a mixed reaction to a particular stock.
market cap – If you are trying to guess the value of a company from the stock price, you are making a big mistake. It is the market capitalization of the company, rather than the stock, that is more important when it comes to determining the value of the company. You must multiply the stock price by the total number of shares outstanding. Inventory in the market to get the market capitalization of a company and that is the value of the company.
earnings per share – Earnings per share is the earnings that the company earned per share in the last quarter. It is mandatory for all public companies to publish the quarterly report that establishes the earnings per share of the company. This is perhaps the most important factor in deciding the health of any company and influences the buying trend in the market that results in the price of that particular stock increasing. Therefore, if you want to make a profitable investment, you should keep an eye on the quarterly reports that companies issue and analyze the possibilities before buying shares of specific stocks.
price/earnings ratio – The price/earnings ratio or P/E ratio gives you a clear picture of how a company’s stock price compares to its earnings. If the share price is much lower than the company’s earnings, the stock is undervalued and has the potential to rise in the near future. On the other hand, if the price is much higher than the firm’s actual earnings and then the values it is said to be overvalued and the price may drop at any time.
Before concluding this discussion on stock prices, let me remind you that there are many other reasons behind the fall or rise of the stock price. Especially there are stock-specific factors that also play their role in the stock price. Therefore, it is always important that you do your research well and trade stocks based on your research and the information you get from your broker. Therefore, to benefit from effective advisory service, it is always better to go to professional securities trading firms than to be lured by discount brokerage ads you must come across every day.