Factors That Influence Stock Prices

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Many market participants often wonder about the factors that influence stock prices. There is no mathematical equations or formula which can help to determine whether a stock price will go up or down. However a number of factors play a key role in the price of a stock. This article will look to explore some of these factors :

1. Fundamental Outlook: One of the most important factors that influence stock prices is the fundamental outlook of the underlying company. The earnings per share (EPS) and the Price to Earnings ratio (P/E) is an important indicator of how the stock has been priced relative to the company’s performance. Along with this free cash flow per share is also a good indicator of the earnings potential of the company. These indicators
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Takeovers or mergers: When there is anticipation that a company will become a potential takeover target there is positive price movement seen in the stock of the company. This happens as companies are generally taken-over at a price which is at a premium to the current market valuations. In other words, it means that the shares of the company will be bought over at a higher price than its current market price, which will eventually move stock prices higher.

3. Launch of new products and services: The launch of new products also lead to appreciation in stock prices. This happens as there are hopes that the product will break into new markets and earns more revenues for the company.

4. New orders and contracts: When a company wins new contracts or orders there are expectations that they will add more revenues to the companies and the earnings will see appreciation. This leads to a sharp increase in stock prices. The reverse occurs when a company loses order and contract.

5. Analysts upgrade and downgrades: Stock prices generally see upside on analyst upgrade as it leads to a positive sentiment. Investors get confident about the stock when analysts upgrade them. There is belief that the experts are finding the stocks undervalued in comparison to the earning potential. This boosts the sentiment and the stocks generally see bullishness. Similarly, stocks see sell off on analyst downgrades as investor loses confidence in the
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Management changes: Management changes also influence stock pricing. If investors feel that the new management has the potential to take the company into greater heights they buy into the stock. This happens as there is anticipation decision the new management has the ability to increase the earnings potential of the company which will lead to appreciation in stock prices.

8. Technical & Charts: Stock pricing patterns on the charts too have a major role. In fact, it is often said that, charts tend to price in all the factors that influence stock prices. The patterns or indicators in stock prices, volumes, moving averages and many others over a time frame can give good indications as to how the stock will get priced in futures. For example, crossover of stock prices over the 50-day and 200-day Moving Averages generally led to a sharp increase in stock prices.

9. Demographics: Macroeconomic factors play a major role in the stock markets as a whole. Amongst the various macroeconomic factors, demographics are an important factor. Generally middle-aged people tend to invest more in stock markets than old aged people. So stock markets of countries that have more of middle-aged people tend to perform well than the stock markets of countries that have aged

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