Stock Basics Ms. Zucchero

Stock Basics Stock prices change every day Share prices change because of supply and demand If more people want to buy a stock (demand) price moves up If more people want to sell a stock than buy it there will be greater supply than demand, price will fall This part is easy, understanding what makes people like or dislike a stock is hard

Stock Basics The price movement of a stock indicates what investors feel a company is worth Not the same as the company’s value - market capitalization $100 per share and has 1 million shares outstanding has a lesser value than a company that trades at $50 per share and has 5 million shares outstanding $100 x 1 million = $100 million $50 x 5 million = $250 million

Stock Basics The most important factor that affects the value of a company is is its earnings Earnings are the profit a company makes Public companies are required to report Better than expected, price of stock will go up Worse than expected, price of stock will go down

Stock Basics Why do stock prices change - nobody really knows for sure The important things to grasp: Supply and demand in the market determines stock price Price times the # of outstanding shares is the value of the company Comparing just the share price of two companies is meaningless Earnings of company are what affect investor’s valuation of a company There is no one theory that can explain everything