Wat r IPOs based off of?

Question

Also how do stocks rise and fall based on wat ppl think its worth I thought it was based on company profits but I read somewhere that it can also be effected by wat ppl think its worth and if they buy or sell

Answer 1

It may be the Internet but the language is still English.  I have the answer but if your grammar isn't any better than that then you wouldn't understand.

Answer 2

IPO's can be priced by what other similar companies are trading at in the market, or what the investment bank thinks the prices can get at the initial offering.  The value of a share is really determined by what someone thinks it will be worth in the future.  The things that influence value are interest rates, inflation, business risk which influences earnings and cash flow.  Company profits are one what value can be determined.  Discounted cash flows and economic value added are two other methods that some people use to value stocks.  Prices are affected by emotions, facts, rumors, economic, political, etc factors.  In the short run it is very difficult to get a good value on a stock.  In the long run it is possible to determine what a stock should about be worth and then determine at what price one would like to buy it.  Some people call this a margin of safety, other investors look at trends.  There are as many ways to determine value as there are people which is why prices fluctuate so much in a given time period.