If the profits of a company increases does it means that the value of their stocks or shares would increase ?

Question

The more money a company makes the more their stocks gain value, right?

Answer 1

Yes.

Answer 2

Current profits are not the only factor.  Expectations for future profits, market share and products/services are also big factors.

Answer 3

No. The price of a stock is a popularity contest.

Example: Intel Corporation

-2001 diluted earnings = $0.19 per share

-2001 gross profits = $13 billion

-2001 price average = $30 per share

-2007 diluted earnings = $1.18 per share

-2007 gross profits = $20 billion

-2007 price average = $22 per share

Answer 4

Yes.  The value of the stock is based on the present value of future cash flows i. e. earnings.

Answer 5

Not necessarily. It's more of a case about whether the business can ensure it is having growing return on equities as well as growing returns on assets. It's also important to look at the businesses model. Can it retain customers? Does it keep competition at bay? If this, and more are checked, then yes, the stock of the price will eventually rise. There are however exceptions. Investors sometimes tend to buy on emotion or according to news reports. If a news report states that a business is likely to be in turmoil, the chances that the stock price will drop is reasonably high. Vice versa too. Revenue should not be looked at as a way of portraying a whole story. In fact, Revenue only tells you the past records. Value tells you the future.  

Answer 6

ALL ELSE EQUAL, yes.  Profits are good, remember?

However, the market might be valuing th stock based on market multiples...like what are peer company price to earnings' multiples.  If the industry is taking a beating, its trading multiples could go down.  so say last year, the average price to earnings ratio was 10x.  and our company had EPS of $1.   value is $10 per share.  but this year, P/E ratios go down to 7x, and our EPS is $1.20 (nice growth there), so value is $8.4 per share.  

this is a simplistic example, but you get the point.  we just had earnings growth of 20%, but value went down.

what if earnings growth was from a one-time gain on teh sale of assets.  it's not recurring.  in this case the increase in profits might not have much of an effect on value.

you have to look at the change in the quality of profits as well.  any accounting shenanigans going on?  was last year a year management just decided to take a bath and get all their write-offs over with?   stuff like that....