What Determines the Price of a Stock?


A stock's price reflects its demand relative to its supply in the market. Shifts in a stock's demand versus its supply--and relative price fluctuations--are influenced by several company-specific, industry-specific and broader economic factors, according to U.S. News & World Report.

A stock's price rises and falls based on the relationship between its demand (number of buyers and shares bid on) versus its supply (number of shares available). When the stock's demand exceeds or rises relative to its supply, the underlying price will rise and vice versa. The factors influencing these shifts vary; a stock's price can rise or fall for a variety of reasons, ranging from broad economic events to company-specific statements.

Market sentiment and several macro factors, such as interest rates, inflation, economic outlook and shifts in economic policy influence the number of buyers versus sellers in a marketplace. However, the factors that influence a particular stock's price are more specific to the underlying company's fundamentals, earnings, news releases, health, growth expectations and industry performance relative to its competitors, according to Forbes.

A company's original stock price is determined by an investment bank during the initial public offering (IPO) stage. An investment bank determines the stock price based on an intense evaluation of the underlying company's current and projected success. When the company comes to market and is traded by investors, its market capitalization and its total value is represented by its stock price, which is of course influenced by the supply and demand, according to Investopedia.com.

Related Videos