Internal Factors in Organization Leading to Change in Stock Prices: Essay

Sample Essay

Words 1,065

There are several internal factors within an organization, which lead to change in stock prices:

Earnings growthabove-average potential growth in profit and above-average valuations as a result of high price/ earnings ratios can lead to change in stock prices. When earnings are high and profits of a company are increasing, investors expect these stocks to perform well in the future, and they are willing to pay high multiples for this growth, this leads to higher stock prices. If the earnings decrease significantly then the stock prices can be effected negatively.

Sales growth: companies can grow bigger but without enhancing shareholder value. Growth in sales coupled with a decline in profitability does not please investors or lead to higher P: E ratios. Thus if expenses are increasing with sales and earnings are negatively influenced, the price of stocks can decline.

Product release: both new product introductions and promotional incentives are considered have a strong influence of stock prices. New product introductions increase long-term financial performance and stock price. Investor reaction to new product introduction grows over time, indicating that useful information unfolds in the first two months after product launch. Third, product entry in a new market leads to the highest stock market benefits.

Leadership changes: the change of leadership or top level management can change the way the organization is managed, therefore if a popular leadership is in place which make the right decisions, then the prices of stocks can rise, if on the other hand there is a hostile takeover or those taking are not perceived to be beneficial to the organization then the price can go down.

Lawsuits pending: the image of the organization is very important if an organization is in the middle of a legal dispute the impact on stock prices can be negative as investors do not favour organizations which are in legal disputes or are being sued.

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