| While in some
parts of the world, stock prices are purposely kept at low prices
via stock splits, this is not the case in the United States. While
it is clearly not desirable in terms of public relations in the U.S.
for a stock's price to be under $5, a number of possible reasons exist
for this market valuation. Many of these revolve around the results
of operations. A company may be a start-up, for example, lacking the
history of revenues or profits on which so much investor confidence
rests. Plenty of
established firms also lack profitability, and the market may reflect
this reality by lowering the stock price accordingly. Some companies
might even have suffered substantial losses and may be hanging precariously
onto financial solvency.
In other types of situations,
however, a low stock price indicates more about the structure of
capital than about earnings or profits. A company may simply be
small, for instance, too small to command large prices for the shares
that it has outstanding. Whatever their overall market capitalization,
other companies have so many shares outstanding that they are literally
spread very thin in terms of price per share. |
