What Drives Stock Price?

The most basic yet most fundamental question: What drives stock price to move up or down?

The magic formula for guaranteeing an investment will rise in value does not exist yet.

But there are four things you can depend on for being the strongest drivers of stock price, and to a greater extent, the price or value of anything. Pay attention to these four things and you’ll have a better feel for future stock price direction, whether it be up or down.

(1) Supply and Demand.

  • A decreasing supply of sellers and/or an increasing demand from buyers will increase a stock’s price.
  • In contrast, an increase in supply of people willing to sell and/or a decrease in demand from those willing to buy, decreases a stock’s price.

Supply and demand pull against each other until the market finds an equilibrium price.

(2) Earnings.

Company earnings are reported by every public company four times per year. An earnings report shows the profits a company made, along with projected earnings for the next quarter. Company earnings are a major driver of investment activity and stock price movement.

(3) Stock Price Itself.

Like a self-fulfilling prophecy, stock price itself drives future stock price.

Price moves to reflect what investors think a company is worth today, in addition to what a company is projected to be worth in the future. As a company’s current value and future value change, the stock price will reflect it like a mirror.

(4) Market Capitalization.

Market capitalization gives you the company’s valuation.

The combined value of each individual share of stock together tells you what investors think the company is worth.

Company value = stock price * total number of company stock shares

Apple (AAPL)

$181.72 stock price * 861,740,000 shares of stock= $922B market cap

Netflix (NFLX)

$321.30 stock price * 433,950,000 shares of stock= $139.43B market cap
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Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of ...

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