01-19-2022, 02:58 AM
What value does a stock really have after it's IPO?
<!-- SC_OFF --><div class="md"><p>I've been trading for about 5yrs. Have stayed on the periphery while I've focused on my career. With the pandemic, I've been able to get more involved being at home. While explaining P/E to someone the other day that it's a function of earnings projections looking forward 10yrs, they began to question what the impact this had on the stock they actually held. I couldn't give them a good answer. He was asking, in the current down market, when the value of a stock goes down, does the company lose the corresponding amt of money. When I explained it didn't; that they received their initial inflow of cash at IPO to start up the company in exchange for shares and then the shares were traded on the open market there after, he asked what the point was of basing stock price on forward projected earnings. Theoretically I get it. The company does better the intrinsic value of the stock is worth more. But I thought he made a good point that in fact, barring dividends, the tie to stock price and earnings is way more arbitrary than I really considered previously. Like I say, barring dividends to a lesser degree and REITS to a greater degree with required 90% cash distributions, if a company makes $10billion over last years $1billion, it sounds great but how is the stock holder benefitting from this is any way but a "perceived" value that someone wants to pay more for it because the company is doing better? They don't actually receive anything for it. What am I missing?</p> <p>Thanks gang; to all those smarter than me.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/scottbrummett"> /u/scottbrummett </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/s76n69/what_value_does_a_stock_really_have_after_its_ipo/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/s76n69/what_value_does_a_stock_really_have_after_its_ipo/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>I've been trading for about 5yrs. Have stayed on the periphery while I've focused on my career. With the pandemic, I've been able to get more involved being at home. While explaining P/E to someone the other day that it's a function of earnings projections looking forward 10yrs, they began to question what the impact this had on the stock they actually held. I couldn't give them a good answer. He was asking, in the current down market, when the value of a stock goes down, does the company lose the corresponding amt of money. When I explained it didn't; that they received their initial inflow of cash at IPO to start up the company in exchange for shares and then the shares were traded on the open market there after, he asked what the point was of basing stock price on forward projected earnings. Theoretically I get it. The company does better the intrinsic value of the stock is worth more. But I thought he made a good point that in fact, barring dividends, the tie to stock price and earnings is way more arbitrary than I really considered previously. Like I say, barring dividends to a lesser degree and REITS to a greater degree with required 90% cash distributions, if a company makes $10billion over last years $1billion, it sounds great but how is the stock holder benefitting from this is any way but a "perceived" value that someone wants to pay more for it because the company is doing better? They don't actually receive anything for it. What am I missing?</p> <p>Thanks gang; to all those smarter than me.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/scottbrummett"> /u/scottbrummett </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/s76n69/what_value_does_a_stock_really_have_after_its_ipo/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/s76n69/what_value_does_a_stock_really_have_after_its_ipo/">[comments]</a></span>Kind Regards R