Question

Under which situations Earnings Per share goes up and stock price goes down ?

Answer 1

Ans. Earnings per share is one of the most important factors that affect the stock price. Most of the investors take their decision on the bases of EPS. EPS is nothing but the portion of a company's profit which is to be allocated to each outstanding shares of common stock. EPS indicates the financial condition of a company. Usually, there is a direct relationship between the EPS and stock price. However, there are some exceptions as well, which can be defined as follows.

Negative Market sentiments: Market sentiments means an overall attitude of investors towards a particular financial market. we can say, it is a feeling or tone of the security market. If there is a bearish ( negative ) market sentiment, a stock price can go down despite good earnings per share.

Negative news about the sector or company: Negative news about the overall sector or company can cause people to sell the stock and stock price may go down.

A new entrant in the market: The stock price of a company may affect negatively due to a new entrant in the same sector. A new entry in the market will increase the competition for the existing company and its share price may go down.

Government policy: Government policies related to the interest rate can cause a negative impact on the stock price. for e.g, if the government decides to increase the interest rate, it may affect the cost of debt for the company. this can reduce the profit of the company and stock price may go down.

Political Instability: Political instability dampens the future economic outlook of a country and optimism about the future is one of the most important factors which drives a stock price up. Therefore, If a country is politically not stable, market sentiments can turn to negative from positive and stock price may go down.

Low Liquidity: Liquidity has a big impact on a stock price. Liquidity refers to how easy to buy or sell a security in a share market. High liquidity refers to more numbers of buyers and sellers to trade in a particular stock, and low liquidity means there are only a few or no buyers and sellers. The stock price may go down in case of low liquidity for that particular stock.

So, these are some of the factors which can move a stock price either up or down irrespective of what EPS is doing.