Stock

Does The Price Of A Stock Matter?

In the United States, today, there are shares of publicly traded companies available for less than $0.0003 each, such as those of Healthier Choices Management (Other OTC: HCMC). There are also shares available that cost close to $500,000 each, such as those of Berkshire Hathaway (NYSE: BRK-A).

If the goal of investing in the stock market is to buy low and sell high, does that mean that investors should buy the very cheapest shares available? Shares that trade at $0.0003 for example? Are these the types of shares The stock dork reviews?

The answer is a resounding, “No!” Here’s why.

With very few exceptions, the shares of every major company one can think of never traded as penny stocks. Almost all went public with initial offering prices above $15 a share. Apple (Nasdaq: AAPL) went public in 1980 for $22 a share. McDonald’s (NYSE: MCD) went public in 1965 for $22.50 a share, as featured with Benzinga. Nike (NYSE: NKE) went public in 1980 for $22 per share, as featured with the Motley Fool. Alphabet (Nasdaq: GOOG, GOOGL) (Google’s parent) went public in 2004 for $85 a share.

Good Companies’ Stocks Trade At High Prices

Though there has been a trend among fast-growing technology and consumer companies to not split their shares, keeping stock prices toward the high end of what has been observed historically, some do split them still. An informative example are the what-would-have-seemed-high-priced shares of NVIDIA (Nasdaq: NVDA), which were trading near $600 in May 2021 when the video processing and artificial intelligence firm announced that it was going to split them four for one.

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Despite the fact that NVDA stock has now lost close to a third of its value since peaking in November 2021, it still sits 49 percent above where it traded when management announced the four-for-one split in May 2021. Pre-split NVDA shares trading with today’s valuation would be worth about $894.

It’s not a coincidence that the shares of a company like General Electric (NYSE: GE) that consolidates, or reverse splits, them in order to raise their price in an effort to “fool” investors are described as going “nowhere,” as featured with the Nasdaq.

Why Do Stocks’ Prices Rise?

What is it about the shares of companies like NVIDIA, Alphabet, and Apple that cause their prices to rise to dizzying heights and those of companies like General Electric that cause them to fall to the point where their management feels that they need to perform seeming smoke-and-mirrors ploys in a reported effort to pull the shades over of the eyes of investors?

It all comes down to profits, or earnings, as featured with Investopedia, and the ability of a given company to grow its profits at the greatest rate possible. Many investors refuse to purchase shares of companies that aren’t growing their profits by at least 20 percent each year. They won’t consider buying shares of profitless companies, or even look in the direction of the shares of revenue-less companies.

Conjclusion

It is not a coincidence that General Electric’s revenue has declined significantly over recent years, while NVIDIA’s has more than doubled, as reported by Yahoo! Finance. Though profits are what stock investors demand, they must be preceded by revenue, the gross sales of a company. With each passing news release and earnings report, investors learn more about the prospects for profitability at General Electric, NVIDIA, and every other company with publicly traded shares, and adjust their expectations accordingly.

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