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Is it true that if the share price is $5 in the market and anyone who wants to sell off their shares in the market for $5.4 then it would mean that he has made a profit of $0.40 on a share whilst if he had sell of his shares on $4.90 then it would mean that he has lost $0.10?
can you please mention what is overvalued & undervalued stock? and how can we really whether identify if the stock of the company is really overvalued or undervalued?
Any gain or loss when dealing in shares is the difference between what the person paid for the shares and what they receive when they sell the shares.
If the share price is currently $5 then if they sell the shares they can only sell them for $5. The current share price is the price at which people can buy or sell shares as of today.
In theory, as you will know from my free lectures, the market value of a share is the present value of the future expected dividends. If the current share price is actually more than the PV of future dividends then the share is currently overvalued. If it is less than the PV of future dividends, then it is undervalued.
1) I get what u explained that $5 is the current share price trading at stock market which anybody can buy or sell at this price BUT why would somebody pay the company more than $5 which is the actual price of the shares in the current times because unless somebody would willing to pay more than $5 then it is the actual gain for the company on the sale of its shares [true?]
2) If the price of a share is $5, but due to the company’s good performance the market value of the share price grew to $7 then it is a $2 gain otherwise if the market value goes down to $4 then it is $1 loss [true?]
3) As regards to overvalued & undervalued share prices, could you please give me an example of this to make it more clear?
1. The price of shares on the stock exchange is the price at which investors buy and sell shares to and from each other. The money does not go to the company – if I own some shares and you buy them from me then it is me who gets the money.
The company only gets money when shares are first issued.2. True. But the gain or loss doesn’t go to the company. It goes to whoever owns the shares.
3. I work through lots of examples in my free lectures showing how, in theory, share prices on the stock exchange are determined – you cannot expect me to type out more examples here 🙂
In real life shareholders do not have perfect information and so in the short-term actual share prices might be higher or lower than they should be according to the theory. If they are higher than they should be then they are over-valued, if they are lower than they should be then they are under-valued.All of this is explained in my free lectures. You cannot expect me to retype all my lectures again here 🙂
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