153

It's important to remember what a share is. It's a tiny portion of ownership of a company. Let's pretend we're talking about shares in a manufacturing company. The company has one million shares on its register. You own one thousand of them. That means that you own 1/1000th of the company. These shares are valued by the market at $10 per share. The ...


126

Stephen's answer is the 100% correct one made with the common Economics assumption, that people are rational. A company that never has paid dividends, is still worth something to people because of its potential to start paying dividends later and it is often better to grow now and payoff later. However, the actual answer is much more disapointing, because ...


124

What would be a reason not to invest in Tesla, or any similar small sized companies that have these same attributes? A big, big, big reason not to invest in such a company is that its stock may be overvalued already. I think a lot of people have the misconception that a stock's price reflects the company's net assets, and so if a company doubles in size, ...


106

Be careful about survivorship bias. For every Apple, Amazon or Microsoft which grew from a garage company to an international megacorporation there are thousands of cases of companies which stayed small or went bankrupt. How can you from the outside judge how great the leadership, how talented the workers and how amazing the product of a company really is? ...


98

You bought the stock at some point in the past. You must have had a reason for this purchase. Has the recent change in price changed the reason you bought the stock? You must assume your losses are sunk costs. No matter what action you take, you can not recover your losses. Do not attempt to hold the stock in the hopes of regaining value, or sell it to stop ...


45

Unissued capital is only a token restriction. When a company is incorporated a maximum number of shares is specified in the legal documentation. Most companies will make this an extremely large number so they never face that limitation. See here. You wouldn't necessarily expect the stock price to change. The reason a company issues new stock is as a way to ...


41

Many news outlets ... are reporting that the current US stock sell-off is due to a stronger-than-expected jobs report in January... Had the market done well in the last few days those same people would have claimed it was due to the stronger than expected jobs report, and in fact oftentimes a strong jobs report does lead to a bump in the market. Furhtermore,...


33

It seems to me that your main question here is about why a stock is worth anything at all, why it has any intrinsic value, and that the only way you could imagine a stock having value is if it pays a dividend, as though that's what you're buying in that case. Others have answered why a company may or may not pay a dividend, but I think glossed over the ...


32

GT BIOPHARMA, INC. ANNOUNCES REVERSE STOCK SPILT AS PART OF OXIS-GEORGETOWN PLANNED MERGER LOS ANGELES, CA / ACCESSWIRE / August 21, 2017 / GT Biopharma Inc. (formerly known as Oxis International, Inc.) announced today a 1-for-300 reverse stock split. Shareholders of GT Biopharma Inc. (OTCQB: OXIS and Euronext Paris: OXI.PA) will be issued 1 share ...


31

If you short the stock on the record date, that is the date that the calculation eligibility for dividends is made, you'd be liable to pay the dividend to the original owner of the stock, so no you can't get sure profits that way.


31

In the case of Tesla, two reasons. 1) Its stock price has already been driven to unrealistic levels by fans; and 2) The corporate leadership. Point #1 seems fairly obvious. #2 requires some comment. The problem here is that Elon Musk seems to have a compulsion to balance every great idea with a really stupid one. Make good electric cars? Great idea! ...


30

I'm not sure why you say, "the company has virtually no debt". Their balance sheet says otherwise. CRTO has about $390 million in accounts payable. Their total liabilities are approximately $750 million. So they may have lots of cash, but they owe even more money than that. Shareholders can't take the company's cash without paying off the company's debts. ...


29

It is not unusual for the acquiring company's stock to fall in any time of merger announcement. Some of it has to do with the fact the acquirer is going to either take on new debt to pay for the cost of the acquisition or they will need to issue new shares. Either is dilutive to shareholder value, so this is "baked into" the process. In the instant case, ...


26

You are misunderstanding what makes the price of a stock go up and down. Every time you sell a share of a stock, there is someone else that buys the stock. So it is not accurate to say that stock prices go down when large amounts of the stock are sold, and up when large amounts of the stock are bought. Every day, the amount of shares of a stock that are ...


26

This is an excellent question, one that I've pondered before as well. Here's how I've reconciled it in my mind. Why should we agree that a stock is worth anything? After all, if I purchase a share of said company, I own some small percentage of all of its assets, like land, capital equipment, accounts receivable, cash and securities holdings, etc., as ...


25

In addition to the other answers here (e.g. already overvalued, liabilities, survivorship bias in perception, ecosystem factors favoring competitor): What would be reasons NOT to invest in a small company that has great leadership, talented workers and an amazing product? One reason would be because the market doesn't value that product. There are ...


22

Even a company with $100M in cash isn't worth that much if, for example, it has $60M in debt. Equity holders only get paid after debtholders get paid. That's why equity has a higher risk and a higher return than debtholders. If the company you're looking at has any debt at all, that would reduce the value of their equity trading on the stock market. Whether ...


21

Index funds are well-known to give the best long-term investment. Not exactly. Indexes give the best long term performance when compared to actively managing investments directly in the underlying stocks. That is, if you compare an S&P500 index to trying to pick stocks that are part of it, you're more likely to succeed with blindly following the index ...


21

There are many reasons for buying stock for dividends. You are right in the sense that in theory a stock's price will go down in value by the amount of the dividend. As the amount of dividend was adding to the value of the company, but now has been paid out to shareholder, so now the company is worth less by the value of the dividend. However, in real life ...


20

Market Capitalization is the equity value of a company. It measures the total value of the shares available for trade in public markets if they were immediately sold at the last traded market price. Some people think it is a measure of a company's net worth, but it can be a misleading for a number of reasons. Share price will be biased toward recent ...


20

You can't own fractional shares. If the Reverse Split resulted in you having less a full share (for example, if you had 500 shares, and they did a 1000:1 reverse split), your fractional share was cashed in (sold). That could be that 'money market' activity shown on the next day? It is your responsibility to be prepared for a reverse split, by either selling ...


18

It has got to do with market perceptions and expectation and the perceived future prospects of the company. Usually the expectation of a company's results are already priced into the share price, so if the results deviate from these expectations, the share price can move up or down respectfully. For example, many times a company's share price may be beaten ...


18

It sounds like the asker is looking for a rule of thumb about P/E. If only the market would be so kind as to have a simple rule of thumb. It unfortunately depends on the time and the range you are looking at. For instance, looking at US Equities, from 2012-present, and looking at each PE value (i.e. thepe=2 finds all stocks with P/E between 2 and 3), we ...


17

First: do you understand why it dropped? Was it overvalued before, or is this an overreaction to some piece of news about them, or about their industry, or...? Arguably, if you can't answer that, you aren't paying enough attention to have been betting on that individual stock. Assuming you do understand why this price swing occurred -- or if you're ...


17

First, I advise against attributing stock market movements to particular pieces of news. Many cable shows depend on your interest in this question, but unless the news is nuclear war, its long-term effect is generally exaggerated on the day that it takes place. And the jobs report really wasn't so out-of-line, and other similar reports over the last several ...


15

Let's say the company has a million shares valued at $10 each, so market caps is $10 million dollar = $10 per share. Actual value of the company is unknown, but should be close to that $10 million if the shares are not overvalued or undervalued. If they issue 100,000 more shares at $10 each, the buyers pay a million dollar. Which goes into the bank account ...


15

It's not really true to say that having unissued stock means that the company is not 100% owned. It'd be more accurate to say that the unissued shares are assets of the company (and therefore, indirectly, of the current shareholders). The company can issue the stock to others in exchange for something that increases the value of the company by a comparable ...


15

Even assuming they have no debt, if revenue dries up they could quickly burn through that pile of cash. The stock may be currently undervalued, but the price reflects the uncertainty of their ability to use that cash and other assets to churn out profits in the future. If they had no debt and were liquidated today then you could definitively say they are ...


14

Everybody thinks they're investing in Apple, until it turns out they've invested in Enron. We have the benefit of hindsight to be able to say that Apple, Amazon and Microsoft were all good investments today - back then, it wouldn't have been so obvious with their small company size and lack of foothold in the market. That's not even mentioning that, for ...


13

In the long term, a P/E of 15-25 is the more 'normal' range. With a 90 P/E, Facebook has to quadruple its earnings to get to normal. It this possible? Yes. Likely? I don't know. I am not a stock analyst, but I love numbers and try to get to logical conclusions. I've seen data that worldwide advertising is about $400B, and US about $100B. If Facebook's ...


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