A stock is a fractional ownership stake in a company that is sold on a public market. The first time a private company issues stock to the general public is known as an initial public offering (IPO), and this can attract lots of media attention, especially for large offerings like those conducted by Facebook in 2012 and Uber technologies in 2019. There are two types of stocks, common and preferred, which differ in terms of voting rights, dividends and price appreciation potential. Investors buy and sell shares of stock for a variety of reasons, including the hope of growing their value over time or profiting from shorter-term stock price moves.
A company’s stock may also offer a dividend, in which a portion of a company’s profits is paid out to shareholders as extra shares of the company. This can be an effective way to earn a regular income from investments, but it comes with the risk of losing some or all of your investment in the event of a company bankruptcy or decline in share prices.
Valuing a stock is an important step in making an investment decision, as it helps you determine whether a company’s share price is fair or overpriced. There are several methods for valuing stocks, and the most common ones are comparing a stock’s price to its peers in the industry. Other important ratios include earnings per share, free cash flow and return on assets.
It is also a good idea to review a company’s financial statements for the most recent year. This will give you an idea of how much the company is earning and spending. A useful line item to look for is the company’s weeks of supply (WOS) metric, which is calculated by taking inventory on hand and projecting future average weekly sales to come up with a value of how long it will take to sell out all of the stock.
Another thing to consider is the liquidity of a stock. Liquidity refers to the number of buyers and sellers of a stock at any given moment, and it can affect the share price. Stocks with a large float tend to have higher prices, as investors are more likely to be interested in buying them. Companies with monopoly positions in their industries can also see their stock prices rise, as they are protected from competition and can command higher prices for their products or services.
If you have a stock certificate for a company that no longer exists, it is a good idea to consult business, city and phone directories as well as periodical indexes. If you are able to find the successor company, it is worth asking their investor relations or shareholder services department about redeeming your shares. If not, the certificate might still be worth something as a collectible or memorabilia.