Welcome to another Stock Market 101 lesson. Today I'll be discussing what causes stock prices to raise and fall.
Stock prices, in their simplest form, are a result of the basic principles of supply and demand. If a lot of people want to purchase a stock, the stock increases in value. Conversely, if many people are trying to sell a stock, its value will decrease. What causes the shift in supply and demand can be practically anything.
The amount of stocks available is something that will obviously change the value of a stock. If two companies who have similar worth both release stocks, but one releases 10,000 and the other releases 100,000, the former will likely have more expensive stocks.
The most common factor is profits and earnings. If a company is making a lot of money, it's fair to assume its stock will be valuable. If a company releases its earnings and they are much higher than expected, that stock will likely jump in price. On the flip side, if a company releases lower earnings than expected, the stock will probably fall in price. Earnings, however, are not the only factor.
Potential and growth can be a large factor in the price of a stock. If a company isn't making a ton of money yet, but it's viewed as "up and coming", its stock can be much higher than its earnings would indicate.
Bad news, or perceived bad news, can have a negative effect. If a company is rumored to be having problems, it can hurt the price of the stock. Sometimes these issues are real and the problems really do exist. Sometimes the problems are nothing more than rumors. Real or not though, bad news tends to hurt a stock's price. Then again, savvy buyers often can spot when the bad news isn't likely to actually hurt the company, snatch up the stock when it temporarily drops, and reap the benefits when its price rebounds.
Other factors can come into play, but most often stock prices are a reflection of supply, demand, earnings, potential, and good/bad news.
