Understanding Stock Quotes
The typical stock quote contains more information than just the current market price per share. It often reveals where the price has been in the past and where it might be heading in the future. A quote can also help the analyst to understand the current stock price relative to historical prices.
Stock Prices and Quotes
To make trading easier for the investor, every stock quote contains a set of standardized information. They disclose both the current trading price for a stock as well as a stock's bid and ask prices.
- Bid Price of a Stock: the price that someone has offered to pay for a stock.
- Ask Price of a Stock: the price at which a holder of a stock is willing to sell that stock.
One of the purposes of a stock exchange is to match buyers with sellers. Beyond the current price of a stock, there are two more elements that usually accompany the quote: the most recent price relative to the prior day's closing price, and the percentage change in price from the prior trading day.
Stock Quote Example
For example, the quote for Coca Cola might look like the following:
KO 41.63 -0.28 -0.67%
This quote tells us that Coca Cola (KO) is currently trading at $41.63 per share, which is $0.28 less, or 0.67% less, than the price at which it closed on the previous trading day.
Historical Stock Price Information
Financial institutions will oftentimes provide additional information along with a stock quote such as historical price points. This may include the daily high and low, the 52 week high and low, as well as the previous close and the day's opening price.
- Daily High and Low: the highest and lowest selling prices for a stock during the current trading day.
- 52 Week High and Low: the highest and lowest selling prices for a stock over the previous 52 weeks.
- Previous Close: the price of the stock at the close of the previous trading day.
- Opening Price: the price which was paid for the first shares of stock traded on the current trading day.
This historical stock price information helps the analyst to understand:
- Whether or not the current stock quote is at, or near, a high point for the day or year.
- Whether or not the current stock quote is at, or near, a low point for the day or year.
- Whether or not the stock's price has been rising, or falling, during the current trading session.
- Whether or not the stock's price is higher, or lower, than the prior day's closing price.
By understanding the historical price information relative to the quoted stock price, investors can, at a glance, get a better feel for where the stock is trading relative to the recent and distant past.
Market Cap, Institutional Ownership, and Total Shares Outstanding
The next set of information to look at is the market capitalization or simply market cap, institutional ownership, and shares outstanding.
- Total Shares Outstanding: the total number of shares the company has issued to the marketplace.
- Market Capitalization: also known as market cap, this is the total shares outstanding multiplied by the current stock price. For example, if Coca Cola's stock price is quoted at $43.38, and they have 4.35 billion shares outstanding, their market cap is $188.7 billion.
- Institutional Ownership: the amount of outstanding shares owned by mutual funds, banks, pension funds, insurance companies and other financial institutions that might trade in significant volumes.
By looking at these elements, along with the stock quote, the analyst can get a better understanding for how big a company is in terms of value in the marketplace. In this example, Coca Cola is a $188.7 billion company, and that makes it a large cap stock. To provide a reference point, small cap stocks might be those companies with a market value of less than $1 billion.
A stock's beta is a measure of the volatility of a stock relative to the overall market or an index such as the S&P 500. A stock's beta often is shown on the same chart or table as the stock quote itself.
When a stock's beta is over 1.0, this indicates higher volatility than the overall market (or S&P 500). When a stock's beta is less than 1.0, this means the stock's price volatility is less than the overall market.
For example, let's say Coca Cola's beta is 0.49. This means Coca Cola's stock price will move about half as fast, or is roughly half as volatile, as the S&P 500 Index.
If the S&P 500 goes up 10%, then Coca Cola would be expected to go up roughly 4.9%. If the S&P 500 goes down 10%, then Coca Cola would be expected to go down 4.9%. Investors who are not comfortable with the potentially unpredictable daily price fluctuations that can occur when owning stocks may want to steer clear of securities with beta values over 1.0.
Stock Quotes and Indices
Sometimes an analyst will see a reference to the stock's inclusion in a major index along with the stock quote. This is especially true if the company is large and prestigious. There are usually two elements seen relative to this measure:
- Index %: the percentage of the index that is accounted for by this particular stock.
- Index Effect: the current effect the stock's movement is having on the index.
For example, Coca Cola is part of the Dow Jones Industrials. It makes up (at the time of this writing) approximately 2.21% of the Dow Index. During this particular trading day, its Index Effect was -0.24. Meaning it was causing the Dow Jones Industrials to drop by 0.24 points.
The above information is all the analyst needs to understand with respect to stock quotes. Next up in this series, earnings per share estimates will be discussed, which is one of the most important measures used by investors to evaluate stocks.
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