Noob stock question

New
Neww

New

Neww
Sep 12, 2018 9 Comments

Why is stock price!=exit price +eps every year.
Shouldn’t they at least be in the same range if not equal? Does that mean a stock is overpriced?
Edit: I understand it has earnings potential accounted for and that the price is set by people. Why is there a difference and the factor is so much?
For example nvidia PB IS close to 20 which makes book value $13. Their eps in th last four quarters have been 1.27 1.7 2.16 and 2. At this rate if one buys even assuming current growth, isn’t this inflated?

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TOP 9 Comments
  • Price is what the market set, it's never rational. Queue someone from amazon.
    Sep 12, 2018 4
    • Stock prices are almost never book value, a stock price reflects what the market believes a company is worth in the future. Present value is rarely a consideration.
      Sep 12, 2018
    • Put differently, price of house <> cost of building materials plus land plus labor. Its what someone is willing to pay for it based on their expectation of future price for the house.
      Sep 12, 2018
  • Intel / Mktg
    nononsense

    Go to company page Intel Mktg

    nononsense
    Price is based on what they expect someone to pay for it in the future. Almost everyone goal in purchasing stock is to sell it for more later. So today's price is based on what they think someone will pay for it tomorrow. That's why growth and future earnings are much more important than today's earnings.
    Sep 12, 2018 1
    • New
      Neww

      New

      Neww
      OP
      Updated description
      Sep 12, 2018
  • Amazon
    Raconteur

    Go to company page Amazon

    Raconteur
    Equity pricing is a huge area of finance. The short answer is things like P/E and P/B are shorthands that work in certain scenarios, but the equity value of a firm is really the discounted value of expected future free cash flows. However, those are not always so easy to ascertain and the market reflects different opinions among buyers and sellers. Book value is only meaningful for certain types of businesses. And GAAP earnings per share are not the same as free cash flow per share - you can Google it to understand the difference.
    Sep 12, 2018 0
  • Book value is the actual $ value of all assets minus liabilities of a company. Market value is almost never equal to book value. It has market's expectation of earning potential baked in.
    Sep 12, 2018 0