yesterday i was think about it. how is it related to company's performance. whatever profit the company makes, how does shareholder benefit of the company does not share dividends? what am i missing? is stock price just regulated by supply and demand and has nothing to do with company's worth? why does it matter to me what EPS, P/E ratios are? not able to find the link. please assist.
Yes, the price is just governed by the trades (the last executed trade price). The potential of future dividends is why the stock fundamentally has value, although of course most people don't wait around for the dividend. Ask the same question about bitcoin and I have no idea. P&E ratio tells you at what multiple of earnings is the price trading at, the lower the better for investment but it doesn't account for future growth.
The answer is both simple and unnerving: no one genuinely knows. Stock markets are not rational forces.
It’s not that simple. Price is governed by all present and FUTURE cash flows. The latter is the kicker. It’s literally how the average of the market THINKS the company WILL perform given all available information. Let’s say Netflix announces a new feature one day. The public consensus will be that it will increase profits a bunch. That means the price will go up a bunch that day because if I know a company will make more money tomorrow, I should buy it today otherwise someone will beat me to it. That’s why price corrections occur every earnings. The public has been guessing how well a company has been doing for a quarter and then when earnings are released, the market consensus will immediately correct to what the factual earnings are instead of what the guesses were based on existing public news. One reason why tech companies have such high P/E ratios is because most of them are in heavy growth phases. So they are priced at what the “wisdom of the crowd” (look that up) thinks the company will be worth one day, not today.
The question is- even if company is going to make profit tomorrow, why does it matter to me if company does not share dividends? What is the incentive in buying?
If they don’t share dividends they reinvest the profit in further growth and therefore their capitalization grows which means your share becomes more valuable too.
Market is driven by sentiment not science. People who know it get rich with the money of fools who don’t. Stocks 101. You are welcome.
Because the market is largely run by institutional investors not the little guy and they can make it move much more
Supply and demand. Buyers and sellers, nothing more.
Stock price is determined by supply and demand for the shares. The demand is influenced by what people think the company is worth now and what people think the company will be worth later. People buy stock because they think that the combination of dividends and sell value will be worth it. When you buy a stock you can look at the dividend history.
Because the primary assumption of most economists (that people in markets behave rationally) is categorically untrue.
I think people behave rationally. I think also economists have the wrong definition of what rational human behavior is
That's interesting... I'd love to hear your thoughts on why you believe people behave rationally
https://lmgtfy.com/?q=How+is+a+company%27s+stock+price+determined
"You teach a man to fish..."