Stock Investing: The Relative Importance of Price Per Share

Stock Investing: The Relative Importance of Price Per Share

(Originally published on February 6, 2011 at

Does the price of a share of stock indicate its upside potential? Can I make more money on a $12 stock than I can on a $56 stock?These questions cannot be answered in a vacuum, so let’s look at contributing factors. First of all, stocks do not go up and down because of pricepoint. Stocks go up and down because investors either like the prospects of a company, then buy the stock, thus driving the price up; or they dislike the company’s outlook, and sell the stock, thus driving the price down. In basic economic terms, these actions are referred to as “supply and demand”.While there are investors who buy modest numbers of shares in low-priced stocks, the larger number of shares traded each day are bought and sold by investment firms, mutual funds and other entities which would never make these decisions based on share price alone. They look at the “fundamentals”, meaning sales, profit, debt, products, competitors and the like, or “technical indicators”, meaning price charts, volume of shares traded, etc., neither of which has anything to do with whether the stock costs $12 or $56.

So the big thing we glean here is that if professional investment companies are not making their decisions based on the price of the stock, neither should you, the novice.

If we have two companies with the same exact sales and profit and products and future outlook, essentially, if all factors are equal, then the lower priced stock will be more of a bargain and have more profit potential for the investor. But the reality is that when you look at the earnings per share of a $12 stock, the number is often negative or below $1.00 per share, while the earnings per share of a $56 stock might be $3 or $4 or $5.

Earnings per share, a.k.a. “EPS” is a number which helps you compare apples to apples. This number takes the company’s annual net profit and divides it by the number of shares of stock which are outstanding. Generally speaking, a stock with an EPS of $4.25 is going to command a much higher stock price than a stock with an EPS of $0.63.

An even easier way to look at the stock price and the earnings per share and make a guess as to whether you’re getting a good value for your money is to look at the price/earnings ratio, a.k.a. “PE”. A $15 stock with an EPS of $0.50 has a PE of 30. A $40 stock with an EPS of $4.00 has a PE of 10. Generally speaking, a lower PE indicates lower risk to the share price. So you’re really not comparing a $15 stock to a $40 stock in this scenario. What you’re comparing is a stock with a high PE of 30 to a stock with a low PE of 10.

There is so much more to discuss and learn, but this is a brief lesson with a moral: “Professional investors do not make it a goal to buy low-priced stocks, and neither should you. Learn more about the balance sheet data which attracts professional investors, and try to buy stocks with similar attractive qualities. In doing so, you will lower your risk that the stock price will plummet, or simply fail to rise.”

Happy investing!

Crista Huff


Goodfellow LLC is a subscription-only stock market website. We strive to identify financially healthy companies in which traders and investors can buy shares and earn dividends and capital gains. See disclaimer for the risks associated with investing in the stock market. See your tax advisor for the tax consequences of investing. See your estate planning attorney to clarify beneficiary and inheritance issues associated with your assets.


Investment Disclaimer

Release of Liability: Through use of this website viewing or using you agree to hold and its employees harmless and to completely release and its employees from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur.

Goodfellow LLC and its employees are not paid by third parties to promote nor disparage any investment. Recommendations are based on hypothetical situations of what we would do, not advice on what you should do.

Neither Goodfellow LLC nor its employees are licensed investment advisors, tax advisors, nor attorneys. Consult with a licensed investment advisor and a tax advisor to determine the suitability of any investment.

The information provided herein is obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. When information is provided herein from third parties — such as financial news outlets, financial websites, investment firms, or any other source of financial information – the reliability or completeness of such financial information cannot be guaranteed.

The information contained on this website is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. This is not an offer or solicitation for any particular trading strategy, or confirmation of any transaction. Statements made on the website are based on the authors’ opinions and based on information available at the time this page was published. The creators are not liable for any errors, omissions or misstatements. Any performance data quoted represents past performance and past performance is not a guarantee of future results. Investments always have a degree of risk, including the potential risk of the loss of the investor’s entire principal. There is no guarantee against any loss.


Leave a Reply

Your email address will not be published. Required fields are marked *