What drives the stock price

Learn What drives the stock price low and high. The stock price drives by many factors. The price given from a moment is supply and demand at a point in time of the market. The fundamental factors drive stock prices based on a company's earnings and profitability from producing/selling goods. Technical factors related to the stock's price history in the market pertaining to chart patterns and momentum of traders and investors. The stock prices would be determined by fundamentals at the basic level that refers to a combination of earnings-based as (EPS) and P/E ratio.

What Moves Stock Prices

These earnings may be distributed as dividends while the remainder will be retained by the company for reinvestment.

Earnings Base : EPS is used as an accounting measure to explain the concept of earnings base as there are measures of earning power. The argument of cash-flow-is based measures as superior. The earnings power is measured depending on the type of company being analyzed. Many industries have tailored metrics. Real estate investment trust will use a special measure of earnings power called funds from operations.

Valuation Multiple :The valuation multiple express expectations about the future. It is based on the discounted present value of the future earnings stream. The two key factors are expected growth in the earnings base and the rate. It is used to calculate the present value of the future stream of earnings high growth rate that will earn stock at a higher multiple. The higher is the discount rate to earn a lower multiple.

Inflation :The input into the valuation multiple but inflation is a huge driver from a technical perspective. So low inflation has a strong inverse correlation with valuations. Deflation is bad for stocks because it signifies a loss in pricing power for companies.

GDP :Gross Domestic Product is the total amount of goods produced by an economy. It is called an indicator of the health of an economy. Strong GDP growth means businesses experience better earnings and indicate a positive economic outlook. The impact on stock markets is not as severe as the other factors.

Three Stock Price Drivers

1) Earnings :The main component of a company’s valuation is earning. The earnings refer to the profitability of its business activities. They are reported every quarter and provide essential information about how a company business is Doing. The Company with strong earnings provides proof that business activities are profitable. The current earnings are not the only important earnings factor forecasted earnings that the company is expected to produce in the future. The company’s future earnings are the most essential in determining its current valuation.

2) Dividends :Main part of a company’s valuation comes from its dividend income stream. So companies will reach a stable level of development and not see much benefit in re-investing all their profits into their company for future growth. The company will begin issuing a dividend to shareholders. A dividend is a cash payment that is paid quarterly but sometimes monthly that the company pays every current shareholder.

3) Valuation :These cash flow streams from a company’s current and future business activities give value to owning a share of stock in the company. All these future cash flows are discounted to their present value to determine the company’s valuation. The expected earnings are translated to their value in the present

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