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What Influences Share Price? 

We all recognize stocks cost money, but what determines the price?  Why can two stocks that cost the same amount have completely different fundamentals?  What factors dictate what a stock sells for?  In the simplest terms, supply and demand, and what a buyer is willing to pay or a seller is willing to accept are the ultimate arbiters of stock prices, but there are a number of other factors that play into stock valuation.  Prior to the past few decades, stock valuation was somewhat easier to determine, but even then there was no hard and fast formula that could be calculated to give you the share price of a stock without exception.  Decades ago share price was roughly the current year’s earnings, times a multiple for the industry the company was in.  Determining stock price now is even more difficult given the fast paced markets, the greater number of individual investors owning stocks, the use of computers by individual and institutional investors, the habit of investors to look further out than just the current year’s earnings, and the rapid pace in which new technologies are introduced by publicly traded companies.  Many components influence the price of a stock.  Corporate earnings are the most influential factor in determining a stock’s price.  If owning a share of stock is holding a small percentage interest in the company, then positive earnings growing at a nice clip is a sure way for your small interest to increase in value.  Events that increase or decrease earnings will affect share price in a similar fashion.  Products effect earnings and share prices.  Innovative products, brought to market ahead of competitors are a Godsend.  Product delays, a new competitor, or product failures that get the attention of the media can all reduce earnings and decimate the share price.  Miss your earnings estimate by 1 or 2 cents per share and you’re in big trouble.  Exceed it by the same amount and you become the stock of the day, running up as much as 10 or 20 percent.  Changes in management can affect share price.  The unexpected departure or untimely death of a key employee or company officer can make a stock drop like an anvil pushed from a plane at 30,000 feet.  In the same way a “name” executive joining a firm can move a stock higher.  An analysts’ upgrade or downgrade of a stock can significantly impact a stock price.  Favorable analysts comments get the sales people at the analysts’ firm pushing the stock to the firm’s customers, and negative analyst comments have the opposite effect.  Upgrade or downgrade the sector a stock is in and it’ll be swept along with all its peers, whether the sector comments fit the individual stock or not.  There is guilt or glory by association if a similar stock in the same industry receives positive or negative comments by the media.  General market conditions can influence whether a stock carries a deflated or premium price.  Stock price can also be affected by how a company uses press releases and the media.  Two identical companies, one that releases frequent press releases of even menial positive events, will perform much better in the market than the other company that rarely provides news of company events. 

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