Who or what determines a stocks value and why?

Question

Is a stocks value, after the IPO, determined by what others are willing to pay for it based upon their perception of how well its particular company is doing?

Answer 1

It's simply the law of supply and demand.  The more buyers the higher the price.  You can't buy into an IPO anyway as an individual, so don't even bother with that one.  The approximate price of a share in an IPO is set by the bank that is handling the issue.

Answer 2

The market is one big auction, there are buyers and sellers constantly trying to get the best price.  

But, there is only one factor that sets the market trend and prices and that is Buyers.

If there are more buyers, the price of the stock goes up or at the least won't go lower,   If the buyers are not in the market, the price of stock drops lower.  

You can have the best company in the world with the best products/services and if there are no buyers, the price of the stock will go no where and will probably go lower,

Buyers have their own motivation, some look for companies with values, some with great fundamentals, others look at just the technical but whatever the cause is, you need buyers.

Answer 3

Once listed on a public exchange a share is valued by the price that someone is prepared to pay for it.  This price is based not only on how the business is performing, but also how the sector in which it operates performs and how the economy in general is performing.  there are also supply and demand issues.  As the demand for a share rises so does the price and the reverse is true.

Disclaimer:

The answers above are for guidance only and should not be acted upon without you receiving independent financial advice relevant to your circumstances.  To find and IFA please call 0800 085 3250 or go to http://www.unbiased.co.uk.

Answer 4

Essentially yes. When you buy stock you are paying the present value for future earnings growth and dividends. That is why when a company revises its growth forecasts or alters its dividend you see the stock price move either up or down depending on what action was taken.  

Answer 5

Yes!  In fact that's how the whole world works when it buy/sells anything... perception of supply & demand.