Is the higher the price the stock ,the better the company? or is there any other main determinants of how the company work well or not base on the stock?
Thanks very much!
2007-06-25 07:16:18 · 7 answers · asked by ryan 1 in Business & Finance ➔ Investing
No, the price of the stock has little to do with the quality of the company, but it is one of the factors involved in determining how much a company is worth. You simply take the current price of the stock and multiply it by the number of shares of stock issued to determine the overall value of the company.
The problem with focusing simply on stock price is that companies have many ways that they can manipulate it through stock splits (issuing multiple shares of "new" stock for every current share) and through reverse stock splits (issuing one share of "new" stock for multiple shares of existing stock). These don't change the value of the company, they just modify the number of shares issued and the price typically changes accordingly.
A company can also affect stock prices by issuing additional stock through a secondary offering (thus increasing the number of shares available). They can also buyback stock, meaning that they purchase stock on the market for their own use and remove it from circulation. Since there's less stock to trade, the law of supply and demand usually pushes the price of the remaining shares higher.
2007-06-25 11:25:41 · answer #1 · answered by Anonymous · 0⤊ 0⤋
The textbook answer is no. I slightly disagree.
Stocks are usually offered at more affordable prices. A rise in stock price over the years should indicate something is being done right. Any stock under $10 has had problems in the past. Past performance does not guarantee what will happen in the future, but it is worth at least noting.
Price earnings (P/E) ratio tells more about a stock. A high P/E shows people are paying more for a stock because they expect the stock to improve. Low P/E stocks may be bargains to buy, but they often are going nowhere..
It is easy to find how much of the stock is owner by institutional investors. If the professional investors are buying a stock, it is usually a good sign.
Personal experience and knowledge are the best investment tools.
2007-06-25 07:34:39 · answer #2 · answered by Menehune 7 · 0⤊ 0⤋
The price of the stock is simply determined by supply and demand. If a company didn't split their stock the price would rise like Berkshire Hathaway to more than 100K per share. Most companies split their stock frequently enough to keep the share holders interested in purchasing the stock price which keeps it rising.
The best indicators of a companies health are found in the balance sheet, the cash flow sheet and the income statement. Figure out what the real story is from the statements and that will show you the true value. Additionally you need to compare the companies with their competitors and industry to get the best picture.
2007-06-25 08:45:57 · answer #3 · answered by Anonymous · 0⤊ 1⤋
The price of the stock has nothing to do with how good the company is (the only exception is most penny stocks are crap). If a company has a $10 stock and 1mil outstanding shares, another company has a $100 stock and 20mil outstanding shares, the first company has a higher value.
The things to look for are a low P/E, (meaning the company makes a lot of money relative to its outstanding shares). A good clean record is important, no history with the SEC of fudging the numbers. Most important, look for a company that you understand that the company does, and you can explain why it will do well in the near future.
Good luck.
2007-06-25 07:24:22 · answer #4 · answered by Anonymous · 0⤊ 0⤋
It's kinda like asking if the more friends a person has, the better they are?
Not necessarily - it means they are more popular, but the that doesn't mean they are wiser or stronger or better or more reliable than anyone else.
A company may have very high-priced stock because demand is high and everyone wants to own a piece of that company, but it doesn't mean the company is well-run or will last a long time.
2007-06-25 07:34:36 · answer #5 · answered by teresathegreat 7 · 0⤊ 0⤋
No. The price of the stock has to do with supply and demand.
2007-06-25 07:24:10 · answer #6 · answered by joe s 6 · 0⤊ 0⤋
not at all. look at the price of enron before it collapsed. This could prove to you that price shows absolutely nothing. Peanuts.
2007-06-25 07:29:29 · answer #7 · answered by noseque1984 2 · 0⤊ 0⤋