Who actually changes the stock price?

The quoted stock price is the price of the last trade between a buyer and seller of the stock. So, the investors who buy and sell shares change the stock price during the day.

How do people predict stock prices?

People attempt to predict stock prices by looking at company trends and news, as well as macroeconomic factors -- such as the health of the economy and specific industries -- to determine which direction a stock is headed. Investors should note that every prediction of a future stock price is an educated guess, at best, since there is no way to determine with certainty where a stock is headed.

What is the formula for the price of a stock?

The basic formula for a price of a stock is a company's market capitalization, or its total equity value, divided by its number of shares outstanding. Each individual share of stock represents ownership of a small sliver of a company.

What is the math behind the stock market?

Investors use a lot of complex math to try to determine how stocks should be valued, but at its most basic level, the math of the stock market is how much an investor believes a company should be worth divided by the number of shares a company has issued. If the calculation comes in at a number above the current trading price of a stock, that could be an indication that it is a good time to buy that stock.

What is a good P/E ratio for a stock?

P/E ratio, or price-to-earnings ratio, is a measure of a stock's price relative to its earnings per share. It is a way to figure out how much you are paying for $1 worth of earnings power. P/E ratios vary by industry. For example, the average P/E ratio for a telecom equipment company in mid-2025 was 40.05, but the average figure for an apparel company was 18.53.

How Are Stock Prices Determined?

Stock prices could determine whether you retire in comfort or you'll need to keep working for a few years. Here's how they work.

By Lou Whiteman – Updated Jul 2, 2025 at 9:37 PM EST | Fact-checked by Frank Bass

Key Points

Stock prices fluctuate based on supply and demand influenced by investor actions and sentiment.
Long-term value is dictated by a company's earnings, impacting stock prices as markets assess true value.
P/E ratio is used to assess if a stock is priced fairly compared to historical earnings data.

Value investing pioneer Benjamin Graham once said that the stock market is a voting machine in the short run but a weighing machine in the long run. Once a company goes public on the stock market and its shares start trading on an exchange, the share price is determined by supply and demand.

Over the long term, share prices are determined by the economics of the business. It's impossible to predict exactly what a stock will do and when, but we can study how share price movement works. Let's unpack Graham's statement a little more and go over how stock prices work.

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A graphic showing the factors that affect stock price: company health, supply, economic reports, demand, and trader sentiment. — Image source: The Motley Fool.

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Bid and Ask

Bid and ask are two points of a price quote. Bid is the price investors will pay for an asset, while ask is the price they’ll sell it for.

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Exchange-traded funds let an investor buy many stocks and bonds at once in a single transaction.

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In the short term, a stock's price is vulnerable to the emotional whims of the crowd. But in the long term, smart investors can pinpoint where the crowd's emotions set up opportunity. Focus on the long term in your investing, and don't let other people's emotions affect your investment decisions.

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FAQs about how stock prices are determined

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About the Author

Lou Whiteman is a contributing Motley Fool stock analyst covering aerospace, defense, transport, manufacturing, specialty finance, and bank stocks. Previously, Lou was a financial analyst and senior writer for TheStreet, a venture capital specialist for The Deal LLC, and a high school personal finance teacher. He holds a bachelor’s degree in communications from Loyola University Maryland and completed a fellowship at the ABA Stonier Graduate School of Banking.

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Lou Whiteman has positions in Home Depot. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.