Understanding Stock Price. Stock prices go up, and they go down…and as traders know, sometimes, these movements can occur quite quickly. But have you ever wondered why stock prices are so volatile? In this infographic, you’ll learn a little more about understanding stock price.
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What is the basis of a stock’s price? In a nutshell, the price of a stock reflects the growth that investors expect in the future. The price can move based on supply and demand in the market. Its movement can reflect what investors consider the stock worth at any given time.
What causes a stock price to change? While there is any number of things that can affect a stock’s price, they typically boil down to the one or more of the following factors:
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Supply and demand: This is exactly what it sounds like. Basically, the more people who want to buy a stock, the greater the demand. The shortage of shares drives the price up.
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Earnings: If a given company’s earnings are better than anticipated, the price of the stock will often go up.
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Valuation: This is a little less tangible, but the overall sentiment and expectation about a stock can affect its price, driving the price up or down.
How can you evaluate a stock’s value? So, how can you figure out what a stock is worth? The infographic delves into several tricks of the trade, including price to book ratio (P/B), price to earnings ratio (P/E), price to earnings growth ratio (PEG), and dividend yield.
In conclusion, stock prices are subject to change based on a variety of factors that affect the value of a stock. While there is not one scientific approach to knowing when or how a stock price will change, by educating yourself on these basics, you’ll gain a better understanding of the market’s movement.
Understanding stock price can be easy if you follow these steps! Do you understand stock price better now?
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