What factors determine the value of stock? What do you think is the most important factor and why?

Answer 1

The two most important factors are earnings and hype.

The effect earnings have on a stock price is shown in its price to earnings ratio. P/E ratio is determined by dividing a stock's price per share by earnings per share. You can also divide total market capitalization by total earnings - it's the same thing. Market cap is price per share multiplied by total outstanding shares.

A P/E ratio for a company not heavily influenced by hype is generally 10 to 60.

Hype, as we saw in the internet stock bubble of the late 90s, can artificially inflate a stock's price, even to the point where the P/E ratio is in the hundreds or higher. Hype is also the only influencing factor if a company is not yet making a profit (see: XM Satellite Radio and Sirius Satellite Radio, stock symbols XMSR and SIRI). Hype took a hold of Sirius stock when they signed Howard Stern to a contract, even though the company was not actually making a profit (and still isn't).

In the case of a stock like Google (GOOG), the intial hype was born out in later earnings, so the stock has a lot of hype, but also has a fairly stable P/E ratio (in the 60s) for a tech stock.

Answer 2

There are two ways to look at this. First, there is the intrinsic value of the stock or its true value, excluding investor sentiment. Here we go and analyize all factors that have to do with the company like the future cash flows, projected growth rates discount rates, the company's beta, management style, tax rates, everything. There are several pricing models that combine all these factors to come up with the intrinsic value of a share.

In the second place we have the value that the market gives to a stock (market value) which is determined by supply and demand.
The investors that buy and sell also analyze all the factors mentioned above and they then decide whether buying or selling is a good deal. Most will buy if intrinsic value is below market value and vice versa.

The most important factor not only in investing, but in the economy as a whole is Mother Inflation. Inflation affects stock prices directly, because it influences general price-levels, wages and salary, investor sentiment , consumer confidence, confidence of businesses, profitibilty projections, everything. And one of the major factors of inflation is oil. That's why all investors keep a close eye on fluctuating oil prices.

Answer 3

I agree more with "mindblower" in that the initial price of the stock is its intrinsic value. Analysts will valuate a company by looking at their books, management, growth potential, etc. to determine what the company is worth. Then they will divide that figure by how many shares the company is willing to offer to the public. The IPO price of the stock will only be useful to the first buyers. After the shares have been bought, the only thing left to determine the price of the stock is supply and demand. News about the company's earnings, management changes, and mergers/acquisitions will cause investors to buy or sell depending on their view of the news. More investors buying will drive the price up, more investors selling will push the price down.

Ron, ChFC

Answer 4

There are many factors besides profitabilty, hundreds actually. You could use price to sales ratio for companies with no profitabilty...ebidta for those companies with high debt service such as TWX (most media companies). It all depends on the industry. You could use the dividend dicount model for utilities....you could discount FFO (funds from operations) for REITS.

To say hype is used to value companies or whas the sole reason stocks skyrocket is wrong. Hype is what went into the valuation technique in the late 90's. Analysts were "hyping" revenue growth rates which in turn led to extreme valuations. The big players won't jump into a stock without some sort of valuation tagged to it...albiet extreme valuation at times.

Answer 5

Value of a stock is dependent upon the comparative performance of the comapany compared to industry standards, it's short term and long term strategies and three the management style or efficiency. You look into the financial statements and compare it using financial ratios to that of the industry standard this gives the performance comparison. Dividend paying ability is a short hand method to asses this. Short term and long term strategies are quantified through growth rate and long term cash generating ability. Management efficiency is quantified through the weighted average cost of capital. Ultimately this translates into the dividend discount model which gives the value of the stock which is it's intrinsic value.
Also the value of a stock depends on the how much peace of mind the agents here the management affords to the Stake holders.

Answer 6

The most important factor are the market indexes

During recessions even the best companies fall.
During good times even the worst companies raise.

The next factor is the atractiveness of the stock:
it may be a widely recognised mark, with a sensational product (most people confuse the companies/products with their undelying stock performance)
it may be producing good profits

Answer 7

There are really only three, but each of them can become very complex to determine. They are: profitability, growth rate of profitability and discount rate. All valuation models are a variation and elaboration, using these factors. You cant say one is more important than the other, because they all play their crucial role in valuation.

Answer 8

nicely, there are specially 2 factors that influence the cost of the inventory: Systematic and Non systematic threat. Systematic threat is that threat that has to do with state the commercial equipment is, it doesn´t remember upon the features of the inventory. it truly is a medical threat because there is fairly a lot no longer something you could do about it. there is no way of controlling it or predicting it. it truly is likewise common as non-assorted threat, because there is no thanks to diversify threat on that inventory because of its correlation with something else of the inventory marketplace. The Unsystematic threat us the prospect asosiated with the particular features of the agency that inventory represents: in a position administration, monetary solvency, monetary indicatorors, comparisons to its competition, marketplace, etc. this can be managed. administration and investors do have a conserving in this threat. Is as a lot as them to do agood pastime for the prospect to be minimized.