When it comes to investing in publicly traded companies there are myriad considerations, but none more important than the price of the stock. The price per share, or PPS, is the unit cost paid or received for each share of stock bought or sold. Just as with any type of economic transaction, the price paid or received in consideration of goods or services is representative of the perceived value or utility of the item to both the purchaser and seller.
Stock prices of publicly traded companies in the United States and abroad are quoted on exchanges and electronic networks, such as the New York Stock Exchange and NASDAQ, respectively. The stock price quoted is a snapshot of the market value or cost per share at any given moment. Stock quotations consist of two prices commonly referred to as the "bid" and the "ask." The bid price represents the price per share a seller will receive, while the ask price represents the price per share a buyer will pay. The actual share price listed is referred to as the “last” quotation, representing the price paid or received for the most recent transaction in the stock.
When a company first decides to go public they issues shares in an initial public offering, or IPO, at a price determined to represent fair value to both themselves and potential investors. Immediately thereafter shares begin to trade in the secondary market and become available to be bought and sold on various exchanges. Share price fluctuates in the secondary market based on supply and demand. As more investors seek to purchase shares, the price per share increases based on increased demand. When demand among investors decreases, the oversupply of shares available results in the price per share decreasing until such time as buyers' demand again increases.
The share price of a public company is a measure of its perceived value among investors. Speculation as to the company's future growth prospects is a major factor affecting the stock price. Additionally, there are numerous fundamental issues influencing price movement, such as the revenue generated from operations, management's ability to operate the company profitably, the company's competitive advantages and their comparative value versus that of their competitors. Separately, there are general market issues that constantly factor into the price per share of a company's stock, such as the current business and macroeconomic environment, as well as the prevailing bullish or bearish market sentiment among investors.
PPS is important to investors contemplating investment in a stock. The decision to buy or sell a stock at any given time is based foremost on whether the investor believes the stock price is high, low or fairly priced after considering the various factors influencing the current and potential future value of the company. Ultimately, the price per share paid or received by an investor becomes their basis or benchmark for determining profit or loss in their investment.
Louis Horkan is a veteran trader, analyst and business strategist with more than 25 years of experience trading in and writing about business and the global financial markets. His articles and commentary have been featured online and in magazines and he's appeared on radio and TV as a strategy/trading expert. Horkan is currently completing a book on commodities trading.