where is the profit in owning a stock?

Question

how can i profit from buying a stock thats value has droped over 50% in the last 52 weeks. Example: 52 Week High 20.00
52 Week low 1.00
In Publications the P/E for this stock will read dd or .... do these symbols mean that i cannot profit from this stock. If so when will i be able to profit. I decide to buy the stock at the low $1.00 a share. lets say 500 dollars worth is invested which would mean i own 500 shares. correct. and the value of this stock gradually makes it back up to 20.00 a share in the 52 weeks ive owned the stock. would this mean that i profit $20.00 times the 500 shares minus the 500 ive already invested. thankyou

Answer 1

I'm not sure what publication would indiciate DD for a P/E ratio, but a stock that swings that dramatically is a poor investment. Think about it this way - a stock can drop from $20 to $1 much easier than increasing from $1 to $20. Simple mathematics dictates that the fall would be a 95% drop while the increase would be a 1,900% increase. Which one is more likely? If the stock dropped that much then there is probably something severely wrong with it (ie: bankruptcy filings) and you should stay clear unless you have a high tolerance for risk and speculation.

It would not be unreasonable for the stock to increase back to, say, $1.15 or so, but much more than that should not be expected.

Answer 2

You are correct you could sell 500 shares at 20 which result in 10000 total sales price. Total profit would be 10000-500 so it would equal 9500 a very nice profit, not that easy to get especially without waiting a while but good if you can get it. Just because the 52 week low and high is 1.00 and 20.00 doesn't mean it will get down to 1.00 in a while in order for you to buy it at that price and if it does get down there it might not be the kind of stock you want to get because might have a going concern issue at that point.

Answer 3

There's two ways you can profit from stocks:
a) as long as you own the stock, you will receive earnings (which is the net income of the company divided by all the shares outstanding) according to how many shares you own.
b) by selling the stock at a higher price that what you bought it for.

1st question.- dd symbols mean that the company has posted losses in the most recent four quarters*, therefore the P/E ratio(last stock price/earnings per share) can not be expressed as a negative number. So NO, you are not profiting from earnings.
2nd question.- So you will be able to make a profit, through earnings, when the company actually starts making money (posting gains).

3rd question.- You would only make that profit by SELLING the stock at $20.00 per share, meaning that you no longer own the share not will you receive any earnings on those shares.

Answer 4

You profit when the value of the stock goes up AND you sell it at the higher price. If you buy at a low price, then the stock price goes up, and then down, but you didn't sell, you made no profit. Similarly, if the price goes down, you haven't lost money unless you sell for a lower price.

You can also profit from any dividend that the stock may pay, but that is usually a small amount compared to what you hope to get from changes in the price of the stock.

Your example is correct, except that there will be brokerage fees both when you buy and sell. Also, there is no guarantee that the stock price will climb from $1 back to $20, or $10, or $2. That's the nature of investing in stock.

Answer 5

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Answer 6

You need to talk to a broker

Answer 7

YES