What Are The Important Factors That Affect The Share Price of A Stock?

There are a lot of things can affect the share price of a stock. Let’s start by looking at the important ones.

Quarterly And Yearly Release of Financial Reports

The quarterly and yearly financial reports that include Balance Sheet, Income Statement and Cash Flow Statement, which gives an overview picture of the health of the company. It’s like a report score card. Think of it as your children who gone through exam every quarter, and come back with a score card that tells you if he/she is scoring straight As.

This is the most important factor; it is a must to at least learn how to read the financial reports. The least you can do is to find out if it is in serious debt and lousy cash flow. The more in debt of the company, the lousier the cash flowing through the company, the likelihood it will go bankrupt.

However this also depends on the nature of the company. For example, banking & commodity industries usually have high debt and negative cash flow.

Potential Growth of Company Business

Companies will usually announce what are their future growth plans. For example:

1. Selling more products in the new market.
2. Open more offices in other countries.
3. Acquiring new company for product or technology expansion.
4. Hiring new CEO who has experience in a bigger market.
5. Launching of new product.

If investors like the growth plan, they are more interested buying up the shares of the companies.

Market Competition

If the company is doing a business where there are a lot of competitors, who are doing the same things. Investors might feel that there is not much growth in this particular type of business. And they may move away looking at those companies.

Dividend Yield

Some companies give regular dividends to attract investors to put in more money with them. If the investors feel that the dividend yield is attractive, they will invest their money, and collect their dividend as a form of passive income.

Buy why do companies give dividend? Aren’t they supposed to keep the money, and use them for growth? I’ll explain more in upcoming post.

Economy Outlook

If the country is in a severe recession, jobless rate is high. Company will be having bad sales because nobody is spending money. Bad sales will lead to decline of profit margin. And investor will run away.

Monetary Policy

If the government has raised the interest rate to a level, where investors feel that is much safer to keep the money in the bank than investing it in companies. Share price will be affected.

Disaster

When disasters strike, such as earth quake, tsunami, credit crisis and housing bubble, Investors will rush to cash out their investment in stocks and put them into other assets, such as gold and bonds.

Why? For a couple reasons:

1. Investors do not how bad companies’ profit margin will be affected. For example, for insurance companies. Investors will start to wonder, do the companies cover the protections in that particular region where disaster strike?

2. During credit crisis, will the bank run out of money and go bankrupt?

3. Housing bubble crash, are more people going bankrupt or jobless? If they do, they will not have money to spend. How bad will companies be affected who their business rely on consumer spending?

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