4.4 NEWS MOVES STOCK PRICES
The value of the stock price of any business is influenced by the investors' expectations of the future earnings of that particular business. If the business has great prospects there may be a potential to place a high multiplier on the current earnings per share value in order to estimate the future earnings value of the business.
A strong effort to communicate that potential could realize a high multiplier on the current earnings per share value by introducing more buyers to the stock. As more buyers come in, the existing investors may postpone selling to realize the full stock appreciation potential.
Investors' expectations regarding the future earnings of the business are measured through the value of the multiple placed on future earnings. Future earnings depend on a multitude of factors and the reality very rarely matches the forecasts.
News about a company's business has the potential to change the demand–supply balance and affect any stock price. Often times, the lack of news may be perceived as “negative” news. On the other hand, widely distributed positive news regarding future earnings may attract new buyers to the stock. The stronger the demand for the stock, the higher the multiple may become.
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