Understanding Stock Prices and Value
There is a common saying: “Don’t judge a book by its cover.” An equally valid truism for the investor could be: “Don’t judge a stock by its share price.” Many people incorrectly assume that a stock with a low price tag is cheap while another with a heftier price is expensive. But a stock’s price will depend on several factors, including how many shares of a company’s stock are outstanding: a company valued at $10 million could have a million shares worth $10, or a hundred thousand shares priced at $100—but the value of the company is still the same.
A stock’s price says little about that stock’s value. More importantly, it says nothing at all about whether that stock will go up or down. Here, we untangle the often…
