At all times, stock prices tend to represent the sum of all investors' expectations for a company's value. The stock price represents the balance between hopes and aspirations of profit for some and the fear of losing for others. OctagonTrade Presents Analyzing company fundamentals
Generally speaking, investors tend to be willing to pay more for stocks with expectations of stable and / or increasing income streams relative to those where income may be more variable or where the future direction of the company is. uncertain.
How to assess the growth potential of a company?
For investors, one of the keys to success in stock trading is being able to understand what factors influence market expectations and how these may change over time. There are a number of factors that can impact both positively and negatively on a business.
Anticipation of growth
The main driver of a company's valuation is its ability to increase profits and possibly dividends. There are several ways a business can increase profits over time.
1) Grow the business
Companies can increase their sales by entering new markets, entering into partnerships and joint ventures, winning new contracts or clients, developing and launching new or improved products, improving marketing and sales offerings, etc.
2) Increase prices
In good times, some companies have the option of charging higher prices for their products as demand increases. This is especially important for resource producers during bull commodity markets.
3) Cost control
A business can also improve profitability by reducing expenses, although those that do run the risk of cutting corners. Looking at operating profit as a percentage of sales (margin) can also give an indication of a company's profitability.
Risk of disappointment
It is important for investors to recognize that while businesses can be very successful, there are also many risks that could cause them to lose money or see businesses decline significantly. Fear of negative results can limit the upside potential of stocks, or even lead to declines.
1) Operational risks
A business can face many problems in the course of its normal operations, including machinery breakdown, entry of new competitors, price wars, increases in input costs, adverse economic conditions, loss contracts or customers, etc.
2) Political risk
It varies from country to country, but concerns the potential for a new government to gain power and implement unfavorable economic policies such as tax increases, new regulations, nationalizations of assets and other initiatives.
3) Currency risk
Companies operating in more than one country run the risk that increases and decreases in currencies against each other may impact the revenues or cost structure of the business and may increase or decrease the profitability of the business. abroad in terms of local currency.
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