Question

why is it that a company has to deliver high growth in order to increase its share price even though the company gets paid only for the first time (i.e, IPO) and nothing thereafter??

Answer 1

the goal of the management is to satisfy shareholders otherwise it will get fired. To satisfy the management you need to increase shreholders' wealth. It means the management should target to increase the price per share . to do so the management should target higher growth rates.

Answer 2

so is it correct that the market analysts project unsensable growth expectations and when the management faulters in achieveing those high targets even by a small scale...they get punished by the stockholders in the form of crash in share value?
Also in such a case what does the company have to do as the market price of the share will yield nothing more to the company?

Answer 3

Shareholders are the owners of the company no matter in what minuscule amount. They provide the money to the company when the company needed it. And that is the reason the company pays dividends to its shareholders out of its profit. Now shares are not only held by public but also the promoters and management. As the shares are traded in the market the price certainly vary but the company retains its own value in the books of accounts and not the market price. The dividend paid is also on its Face Value and not the market price. As the company performs good, the market demand for its share increases and so is the reputation and goodwill of the company. The Management holds the majority shares, so if the market share price is going rocket high because of its performance imagine how much the management themselves are profiting by holding these shares! I hope you are clear

Answer 4

yeah i agree ...but the shares that are held by any shareholder has only a virtual value until it gets exchanged for money.....so my question now is that why does the market price of the share fall even when a company provides its best performance (topping the industry) but could not meet the projections of market analysts who may or may not have a clue of whats happening in the company?

Answer 5

That's mostly depended on the Demand and Supply factors of the shares resulting mostly from the speculations. When company performs good but do not meet the projections, speculators assume the company's price will fall and it may be not a good idea to hold it.. so as the number of sellers increase than the demand... the stock prices fall. But if its a fundamentally strong company, it need not worry. Long term investors and the company's management, peformance and growth opportunities always make it a valuable share in the market

Answer 6

thanks for sharing my question in finance doodle :)

Answer 7

Welcome :) shared because it was a general question many have in their mind