Stock, also known as equities, represent ownership shares in a company. They allow owners to benefit from a company’s growth and earnings, but also expose them to loss. The price of a stock fluctuates on a daily basis due to numerous factors, including financial performance, technological innovations and regulatory developments. Investing in stocks can be very lucrative if done properly, but is also risky and requires extensive research into individual companies.

A stock represents a fractional ownership stake in a company. Stockholders have voting rights and can vote on management changes, as well as receive dividends if the company pays them. They also have limited liability, meaning they’re not personally liable for the company’s debts if it fails.

The primary reason most people buy stocks is to increase their wealth. Stocks are a major asset class that can deliver higher returns than bonds, real estate or commodities over the long term. The prices of individual stocks fluctuate on a daily basis, which can be frustrating for investors. The main cause of these price fluctuations is market sentiment, economic conditions and financial performance.

Valuing a stock is the process of determining its intrinsic value — its worth as a business based on the cash flows it will generate over time, discounted to present day values. This is a complicated task, and many experts have different approaches. One of the most common is the price-to-earnings ratio (P/E), which compares a company’s stock price to its annual earnings per share. Another is the price-to-sales ratio, which measures a company’s value based on its total revenue divided by its current stock price.

Some analysts use more granular metrics, focusing on specific business practices or comparing against industry competitors. For example, the number of times a company experiences stock outs — when customer orders cannot be fulfilled – is a key performance indicator that can affect customer satisfaction and lead to lost loyalty and sales. Another metric is inventory turnover, which looks at how many times a company’s products are sold and replaced in a given period.

In addition to these more granular metrics, there are broader industry and market benchmarks that can be used as comparisons. These include industry and market indices, as well as analyst reports.

For highly traded stocks, supply and demand is a significant factor in their price. On a second-by-second basis, the price of a stock reflects the amount that buyers are willing to pay and sellers are willing to accept. For example, if there are more buyers than there are sellers, the stock’s price will rise. If there are more sellers than buyers, the price will drop. This is called the law of supply and demand and is an example of what economists call the “weighing machine” principle.