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For investors, it is vital to understand the concept and know-how to distinguish stock price from stock value. If you confuse these two concepts, the trading decisions made by investors will be affected more or less and thereby affect the profits earned. This article will help you understand stock price and stock value and the difference between them.
1. What are Stock Price and Stock Value?
The stock price represents how much the stock currently trades at – or the amount you pay to buy a stock.
The stock price is not fixed but fluctuates according to market conditions or demand between buyers and sellers. If there are more buyers than sellers, the stock price will increase. If there are more sellers than buyers, the price will fall.
The stock price is essential data for investors to determine if a company is a worthwhile investment. Therefore, you need to regularly update the market price situation to make wise and quick decisions, especially when a critical problem occurs.
Stock value is the value of all assets (tangible and intangible) under the business’s current owner. It measures a company’s total value, often used as a more comprehensive substitute for the market value of equity (or market capitalization).
The stock price does not always reflect its value correctly. It may be higher or lower than the stock value.
By analyzing the actual value of a stock, long-term investors will know whether or not they should invest and at what price they should buy to get the maximum return because the positive news can push the price much higher than its actual value and vice versa.
2. Distinguish Stock Price vs. Stock Value
Most individuals misunderstand that a stock’s value is represented by its price, especially traders who are new to the stock market. To some extent, this is correct. There is a significant distinction between the two. The price of a stock only reveals a company’s current or market value.
Stock prices will be affected by the number of shares traded at the exchange or the agreement between buyers and sellers. If there are more buyers than sellers, the stock price will increase. If there are more sellers than buyers, the price will fall.
Meanwhile, the stock value will not be affected much by those factors. Enterprise value will increase when the core value of the business increases (well-developed business, high product quality, and potential for future growth, etc.)
Investors use various methods to calculate the intrinsic value of a business and buy shares when the market value is less than the intrinsic value.
Furthermore, short-term investors (traders) will be more concerned with a stock’s price and its volatility, while investors are more concerned with the stock value or intrinsic value of the business to make a decision whether to buy. stocks and hold for the long term or not.
3. Which Factors Affecting Price and Value
The price and value of a stock may also be affected by fundamental factors. Each of the below is important.
First, the financial health of a corporation has an impact on its stock price. Stocks with strong earnings and financial statements are more likely to perform favorably.
Company, Industry and Economy News
In addition, stock prices are also affected by many external factors such as important news, financial reports, the economic and political situation of a country, etc.
Any positive news about a company (such as a good earnings report or jobs report) will affect its stock price. It can push the price much higher than its actual value and vice versa.
There is a very famous saying that “Don’t judge a book by its appearance.” Applying that saying to investing in stocks, experts advise newcomers to the market not to judge a stock solely by its price because a stock’s price doesn’t always reflect it. Its true value. Therefore, you need to know how to value stocks to make better investment decisions.