It happens to many people: You type a company's ticker symbol into a search box at a financial website, and you're given a page full of information, much of which is Greek to you. Don't just click away, though, as there's a lot of useful information there -- and mastering stock market quotes isn't rocket science.
Let's tackle deciphering stock market quotes by using an example. Clothing retailer Gap is a handy one, familiar to many. Type its ticker symbol into, say, the ticker box at Fool.com's CAPS site, and you'll soon be looking at all kinds of letters and numbers. Permit me to offer some insight into some common things you'll find when viewing stock market quotes:
Let's start with that ticker symbol itself. Many companies have rather obvious and easy-to-guess ones, such as IBM. Others are... less so. You might have expected Gap's ticker to be GAP, but that has long belonged to the Great Atlantic & Pacific Tea Co. supermarket chain, which is better known as A&P. It filed for bankruptcy protection in 2012, though, and its future is uncertain, so it's possible that GAP might one day belong to Gap. In the meantime, though, its symbol is GPS, which is perhaps being salivated over by the folks at GPS-specialist Garmin.
On to the numbers that you'll typically find in stock market quotes. There will be the company's actual stock price, of course, and, if it's during trading hours, the number will probably fluctuate each time you refresh the page. That's because each price reflects the price at which the stock last changed hands. If there's a lot of demand, it will fetch a higher price, and vice versa. You'll also likely see the price at which the stock closed on the last trading day. And you'll frequently see the price's range over the past 52 days. In Gap's case, when I was preparing this article, its price was about $43.75 per share, and its 52-week range was $26.57 to $44.25. From just those numbers, you can see that the stock is near a 52-week high.
Market cap, explained
Gap's market cap (short for market capitalization) is around $20.5 billion. The number is arrived at by multiplying the stock price by the number of shares outstanding. Note that a stock's price alone doesn't tell you much about how the company is being valued -- the market cap is more helpful there. Gap has about 467.7 million shares outstanding (per the "Stats" page in CAPS). Multiply that by $43.75, and you'll get $20.5 billion. The company might alternatively have had a billion shares, priced around $20.50 apiece, yielding the same market cap.
The market cap is good to know because it can help you compare companies via stock market quotes. You might think that Gap and Urban Outfitters are similarly valued, as they each are priced in the mid-$40s. But Urban Outfitters has a market cap just north of $6 billion, making it far smaller in the eyes of the market. Abercrombie & Fitch has a higher stock price than Gap -- near $51 recently -- but a far smaller overall market value, at $4 billion.
P/E ratios and dividends
Another common metric listed with stock market quotes is the P/E, or price-to-earnings, ratio. It, too, can give you an idea of how the market is valuing a stock, as it reflects how much each dollar of the company's earnings costs. It's a simple ratio, dividing the stock's current price by its past year's earnings per share, or EPS. With Gap, the stock price near $43.75 is divided by its trailing 12-months', or ttm, EPS of $2.57, yielding a P/E of 17. In general, the lower the P/E, the more compelling the stock price (though companies in trouble whose stocks have crashed will also have low P/Es). At sites such as Fool.com, you can find historical average P/Es for most companies. Gap's P/E has ranged from 6 to 16 over the past five years, meaning that its current price seems steep.
The stock market quotes also usually include dividend data, such as the actual annual dividend amount (over the past year), which, when divided by the stock's price, gives you the dividend yield. In Gap's case, an annual dividend of $0.60 yields 1.4%. So, if you buy the stock today, you can expect to receive 1.4% of your purchase price in dividends each year. (And healthy, growing companies will generally hike their payouts over time, too.)
Spend a little time among stock market quotes and you can learn a lot about a company's stock. The more you learn, the better an investor you'll likely be.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.