Factors that influence the price of a stock

Which are the factors that influence the price of a stock?

Broadly there are two factors: (1) stock specific and (2) market specific. The
stock-specific factor is related to people’s expectations about the company,
its future earnings capacity, financial health and management, level of
technology and marketing skills.
The market specific factor is influenced by the investor’s sentiment towards
the stock market as a whole. This factor depends on the environment rather
than the performance of any particular company. Events favourable to an
economy, political or regulatory environment like high economic growth,
friendly budget, stable government etc. can fuel euphoria in the investors,
resulting in a boom in the market. On the other hand, unfavourable events
like war, economic crisis, communal riots, minority government etc. depress
the market irrespective of certain companies performing well. However, the
effect of market-specific factor is generally short-term. Despite ups and
downs, price of a stock in the long run gets stabilized based on the stockspecific
factors. Therefore, a prudent advice to all investors is to analyse and
invest and not speculate in shares.
What is meant by the terms Growth Stock / Value Stock?
Growth Stocks:
In the investment world we come across terms such as Growth stocks, Value
stocks etc. Companies whose potential for growth in sales and earnings are
excellent, are growing faster than other companies in the market or other
stocks in the same industry are called the Growth Stocks. These companies
usually pay little or no dividends and instead prefer to reinvest their profits
in their business for further expansions.
Value Stocks:
The task here is to look for stocks that have been overlooked by other
investors and which may have a ‘hidden value’. These companies may have
been beaten down in price because of some bad event, or may be in an
industry that's not fancied by most investors. However, even a company
that has seen its stock price decline still has assets to its name - buildings,
real estate, inventories, subsidiaries, and so on. Many of these assets still
have value, yet that value may not be reflected in the stock's price. Value
38
investors look to buy stocks that are undervalued, and then hold those
stocks until the rest of the market realizes the real value of the company's
assets. The value investors tend to purchase a company's stock usually
based on relationships between the current market price of the company
and certain business fundamentals. They like P/E ratio being below a certain
absolute limit; dividend yields above a certain absolute limit; Total sales at a
certain level relative to the company's market capitalization, or market value
etc.