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If many companies have equal risk what determines why some have higher stock prices?
Wiki User
∙ 15y ago
Companies with expectations for high return will have higher relative common stock prices than those companies with poor expectations. Since the securities' prices in the market reflect the combined judgment of all the players, price movements provide feedback to corporate managers and let them know whether the market thinks they are winning or losing against the competition.
The number of shares is also one of the reason. It works like this. If you bought $100 from 10 people ten rupees each then each one should get ten $s each from you. If you bought $100 from 5 people $20 each then you have to woe them $20. The share prices also works like this.
The face value of share price also another reason. Which is almost similar to above reason.
The relative values of companies also factors into it, or at least it does in a sober market. (Yes, I am referring to the dot-bombers...) Say Pat's Steaks, a cheesesteak shop in Philadelphia, decided to issue a million shares of common stock. This is a company with exactly zero risk--if the whole place burned to the ground tomorrow morning they'd have it running again in a month and, assuming their business records are off-site, they wouldn't be hurt much. But it's a single-location restaurant that's about the size of your living room. There's no way you could get this place to value out at more than MAYBE two dollars a share, because the only thing it has is name and reputation. Now, if a company with $30-$40 million worth of equipment and $100 million in sales, and the exact same level of risk as Pat's Steaks, sold a million shares of common stock, the valuation would be vastly different.
Wiki User
∙ 15y ago
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