Just as consumer goods like automobiles and cellphones come with a price tag, so do shares of stock issued by companies. The price per share, or PPS, is the monetary amount paid or received for a given share of stock. The price per share can help investors decide whether a given company's stock is worth buying.
Changes in price per share
The price per share for a company's stock can fluctuate based on the company's performance, as well as market conditions. For example, a company might start off the trading week with a price per share of $20, but if it releases a negative earnings report that same week, then its price per share could drop to $15.
Another way to think of price per share is the market price, or going rate, for the stock in question. Stock prices of publicly traded companies are quoted on public exchanges, so you always have the option of getting the most up-to-date pricing before pulling the trigger on an investment.
Opening price per share in an IPO
During the initial public offering (IPO) process, financial analysts will make their best estimate of how much a company is worth, decide how many shares will be offered to the public, and set the price for each share of common stock issued. These determinations are based on comparisons to similar companies and factors such as projected growth. The number of shares a company issues can impact the price per share. If a company's value is estimated at $20 million and it issues 20 million shares, then the initial price per share will be $1. On the other hand, if that company issues 10 million shares, the initial price per share will be $2.
Significance of PPS
Price per share is an important figure for investors to consider. In many cases, the decision to purchase or sell a given stock is based on its current price per share. If you're looking to buy a certain stock, you'll want to do so when the price per share is at a relative low, as this gives you the greatest chance of making money on your investment. On the other hand, if you're looking to sell a stock that you currently hold, you generally want to wait until the price per share is higher than the price you paid so that you can make money from the sale.
PPS and other financial calculations
Once you know the price per share for a company's stock, you can use that information to calculate other metrics that can help you determine whether the stock in question is a good investment. For example, the P/E ratio, which measures the relationship between a company's price per share and its earnings per share, can indicate whether a stock is overvalued or undervalued.
If a stock is overvalued and you buy it when its price per share is higher than it should be, then you run the risk of losing money. On the other hand, if a stock is undervalued and you buy it when its price per share is lower than it should be, you could end up profiting if the price per share rises to reflect that stock's true value.
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