Why the stock price is rising when company is growing well [duplicate]

Question

I mean, you have a company with shares of 20 dollars and they have 10 million of it (market cap 0.2 B), not paying dividends. What makes other people buy their stocks, when they see that they were doing great e.g. in Q1 and they expect growth? Company doesnt pay dividends. Suppose they can earn 100 millions/y and they have two classes of stocks and they sell only B stocks (with much less votes) so that they cannot lose their majority and someone cant just buy them and take over the company. Why should the price go higher? Why should the demand go higher, when the company is doing amazingly well?

Why the stock price rises, when someone is doing great and growing? Do people buy stocks just because they think that other people will do the same and according to supply and demand law, the price will go higher? That seems just a bit odd. What do they expect? They expect to get more money than they invested, but how exactly (why the demand and therefore price goes higher)? They expect that the price will go higher for example, but why should it go higher? Why should the demand be higher and make the price rise?

Answer 1

A share is more than something that yields dividends, it is part ownership of the company and all of its assets. If the company were to be liquidated immediately the shareholders would get (a proportion of) the net value (assets - liabilities) of the company because they own it. If a firm is doing well then its assets are increasing (i.e. more cash assets from profits) therefore the value of the underlying company has risen and the intrinsic value of the shares has also increased.

The price will not reflect the current value of the firms assets and liabilities because it will also include the net present value of expected future flows. Working out the expected future flows is a science on par with palmistry and reading chicken entrails so don't expect to work out why a company is trading at a price so much higher than current assets - liabilities (or so much lower in companies that are expected to fail).

This speculation is in addition to price speculation that you mention in the question.