Does spending money at a company affect their stock price?

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I just don’t understand how it works…when I hold shares in a company and I spend money there, am I technically making a very very small amount of that money back?

ALSO:
what is the simplest way to explain how stock prices increase then?

In: Economics

29 Answers

Anonymous 0 Comments

Yes no matter which way you look at it. 

The main question: what did you buy? 

Is it an asset or part of COGS that will go into making a new product or service? Usually this expense will come back as revenue several times the amount of the expense (margin), though usually with a time delay. This is a smart way to spend money. 

It is a pure expense? This will also affect the balance sheet, ultimately dragging down EBITDA / the bottom line. Since investors typically look at growth and profitability, and P/E ratios inform stock price, indirectly. The market can “choose” to adjust stock price based on financial results, but usually do. 

Anonymous 0 Comments

No. Stock prices are market perception, thats it.

There may be an effect where the company does slightly better, people see that reported, and people think the stock is more valuable…

BUT, thats all perception. Stock prices are not DIRECTLY influenced by anything a company does.

Anonymous 0 Comments

No. Stock is a security that is valued based on a number of factors, and revenue is one, but only noticeable shifts in revenue will change the calculus. No one is making any different assessments about a stick because of individual sales. Ultimately the value of a stock isn’t tightly tied to any particular number, it’s valued based on whether people think it’s going to go up or down.

The best thing you can do to help a stock is talk about the future of the company in a positive, fact-based way publicly, like on Twitter. This isn’t exactly ethical if you hold stock in the company and don’t disclose that, but you can say “here’s why I own this stock,” and cover that base too.

Anonymous 0 Comments

There is no simple answer as to what determines stock price. Yes supply and demand is one thing but it’s not everything. The fundamentals are also important, that is the actual bottom line of the company, how much they’re making, how much they’re spending, how much they’re borrowing. A huge part of it however has to do with speculation and investor sentiments, which are intangible things. Based on their earnings reports and guidance, how do investors feel about the near future outlook of the company. Did the CEO tweet anything, are they under investigation or have pending litigation against them, do professional analysts feel they’ll go up or down, do average retail traders feel one way or another. All those things play a role and it’s impossible to predict it fully.

Anonymous 0 Comments

As others have already mentioned, spending money at the company results in:

* A tiny (yet real) increase in revenue
* Which may translate to a tiny increase in profit
* Which may have a tiny impact on the psychology of traders
* Thus resulting in a tiny increase in stock price

This is all so negligible that its basically invisible to you.

There is however, one counter point to consider:

In some rare instances, companies will deliberately offer a good/service *at a loss* (in an attempt to provoke customers to make other, higher margin purchases).

So some purchases may technically drive the stock price in the wrong direction (an infinitesimal amount).

Anonymous 0 Comments

Yes, in a very small way, but in the grand scheme of things, you personally, no.

Don’t think of stocks as being a sort of profit share.

Stocks only have two values where you’re concerned – when you bought them and when you sell them. You earn money when you sell the stock for a higher price than you bought/acquired them. In fact you can lose money if you sell the stock at a lower price than when you bought them.

Very simplified metaphor:
– say I bought a Rolex for $10,000
– the model I have is getting popular and people want them
– people are willing to pay more for it from people who’ve bought it
– I sell the Rolex for $15,000
– I profit $5,000

So if earning money with stocks is dependent on me selling the stocks, how would spending money at a company affect stock price?

It’s quite simple really:

– people buy stocks to sell them at a higher price
– when customers spent money at a company (buy buying their goods/services), their profits go up
– when profits go up, people who own stocks can tell other people “hey this company is doing well, buy my stock so you can be part of this company, and in fact it’s doing so well that I am selling this stock at a higher price to you, and when the company gets even more profitable, you can sell it at an even higher price to someone else!”
– when customers don’t spend money at a company, their profits go down, and people don’t sell their stock, or “worse”, they sell their stock and lose some money so they can use what remains to buy stocks from a company that would sell for higher prices in the future

But profit is just one thing.

Tim Cook could fart and it could tank Apple’s stock prices. Or increase it. Depends on when and where.

Any activity or event or consequence a company goes through, it impacts how people perceive the company and that affects whether people buy more or less of the product or whether suppliers are eager or unwilling to work with them to maintain production to meet demands, or whether laws and regulations affect how the business is run.

All of those things affect revenue and where revenue goes, typically profit follows.

Anonymous 0 Comments

Edit: Misread the question as if you are an employee spending the company’s money of stuff. I’m not rewriting this whole thing since it does cover how stock prices are affected by bother earnings and expenditures.

End of edit.

The price of a stock is correlated to the company’s profitability but there’s little to no direct causative link — unless the stock pays dividends. (The rest of this post assumes the stock DOES pay dividends.)

The price of a stock is determined based (essentially) on how much people want it which, in turn, is based on what they think the price of the stock will be later on. Additionally, if the stock pays dividends, the amount of the dividend is based on the performance of the company.

So if you spend a bunch of money, this could reduce the performance of the company which would shrink the dividends or possibly make the company less desirable since it didn’t perform as well as projected or something like that.

But the amount of money you’d have to spend in a publicly traded company to affect performance is, like, a lot of money. On the order of 7 or 8 figures. And it’s not just about the expenditure but also the revenue resultant from the expenditure.

Like, if I spend $10m on a marketing campaign, there’s a really good chance than the revenue that comes in from this marketing campaign will at least partially offset that $10m. Of course we *hope* that the revenue exceeds $10m. (This is referred to as ROI, Return on Investment, how much money we’ll make from spending xyz amount of money.) If the marketing campaign has a positive ROI, the stock has a higher likelihood of paying a bigger dividend which raises the demand for the stock which raises the price of the stock.

Now, let’s say ~~Warner Bros~~ Disney fully produced ~~a Batgirl film~~ another Avengers film but cancelled it before release. (For this scenario, let’s say that they’re also not claiming the loss on taxes or insurance. If this was done intentionally, it would be tax fraud or insurance fraud, of course.) This represents a huge expenditure with no revenue. The company is not making that money back since they stupidly decided that nobody can pay to see this film ever. This represents negative ROI and likely represents a lower than projected earnings number which would result in a lower dividend payout, reducing the demand for the stock, in turn lowering it’s price.

tl;dr: Stock price is less about the spending and more about how much the company makes as a result of spending.

Anonymous 0 Comments

So there are two ways you can make money from owning a stock:

the first is dividends. When a publicly owned company makes a profit sometimes they will return that profit to shareholders in the form of a dividend, you get a proportional share of the profit based on how much stock you own.

The second way is an increase in value of the stock itself. The price of a stock is theoretically determined by collective decision-making, estimating the total value of the company including future earnings, divided by the amount of stocks. The price of a stock can therefore go up when the company is expected to make more money, or when the number of stocks decreases. Sometimes when a company has excess profits, instead of giving them back directly to investors as a dividend, the company will instead buy stocks and destroy them thereby decreasing the number of stocks in existence and increasing the value of the remaining stocks.

When you buy from a company, there are two effects. One, it demonstrates that the future earning of the company, and thus helps support its increased value evaluation, and two, they should make a profit from that sale. This profit will be either reinvested to help the company grow (thereby improving its future earnings potential) or return to the shareholders via dividend or stock buyback.

Anonymous 0 Comments

No. Stock value is about the percieved value of the company, nothing to do with its actual gains

Anonymous 0 Comments

for the most part, yes, but indirectly and it takes more than just you spending money. Stock prices have no connection to anything other than the stock market. Stock prices go up because of demand for the stock itself. Ie. people are buying the stock (investing in the company.)

When you spend money at a store, you are contributing to that company’s revenue. When revenue goes up, people tend to want to buy the stock more, which will cause the price to go up.

You could buy all the stuff you want from the store though, and the stock price could still go down anyway. Revenue is only one part of a company’s financials.

Even if every penny you spent contributed to the value of the stock, companies usually have millions of shares in the market. You’d have to spend 150 million at apple to move the stock price a penny.