The expected growth in the earnings base The discount rate, which is used to calculate the present value of the future stream of earnings A higher growth rate will earn the stock a higher multiple, but a higher discount rate will earn a lower multiple.
Full Answer
What are the fundamental factors that affect the value of stocks?
In summary, the key fundamental factors are: The level of the earnings base (represented by measures such as EPS, cash flow per share, dividends per share) The expected growth in the earnings base. The discount rate, which is itself a function of inflation. The perceived risk of the stock.
What are the forces that move stock prices?
Forces That Move Stock Prices 1 Fundamental Factors. An owner of common stock has a claim on earnings, and earnings per share (EPS) is the owner's return on his or her investment. 2 Technical Factors. Things would be easier if only fundamental factors set stock prices. ... 3 News. ... 4 Market Sentiment. ... 5 The Bottom Line. ...
Why does a stock price go up or down after earnings?
If you’ve ever seen a company’s stock price go up or down following an earnings call, it’s because of the news. “The trick is to decipher news that can have an impact on fundamental factors versus noise that can alter the short term supply and demand of a stock,” Plumb says.
What does the stock price reflect about a company's Future?
This rising price reflects investor expectations that the company will be profitable in the future. However, regardless of the stock price, there are no guarantees that a company will fulfill investors' current expectations of becoming a high-earning company in the future.
Pro Tip
Investing always carries some risk. That’s why it’s a good idea to spread out your investments among many different stocks.
Fundamental Factors
The two most fundamental factors boil down to profitability and the valuation ratio, says Juan Pablo Villamarin, CFA and senior investment analyst at Intercontinental Wealth Advisors.
Technical Factors
Technical factors are things that change the supply and demand of the stock that won’t fundamentally alter the prospects of generating cash, Plumb says.
News
If you’ve ever seen a company’s stock price go up or down following an earnings call, it’s because of the news.
Market Sentiment
Market sentiment, or investor sentiment, is the investor outlook regarding a particular stock’s performance in the market. Sentiment drives demand, which also influences supply.
