When we invest in a company, we invest in its potential to make more products, more profits, to continue to grow, and add value to the price of each individual share.
A share of stock represents one unit of ownership in that company. All shares of that stock in circulation, multiplied by its value per share (share price) make up the market’s estimate of the value of that company – that is, the market capitalization.
The more profits a company makes and the faster those profits are growing and are projected to grow, the higher the company’s value in the longer term at least. History tells us that consistent growth in sales and earnings lead to a higher stock price in the longer term…and vice versa.
So, if you choose to be primarily a fundamental investor you would look to corporate profits to determine your entry and exit points.
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