A stock is a financial security that represents an ownership interest — or equity — in the issuing corporation. It’s a form of corporate capital that companies sell on public exchanges like the New York Stock Exchange and Nasdaq. Each share of a company’s stock represents a proportional claim on its net assets and future earnings. Investors in the stock can earn dividends, vote at shareholder meetings and sell their shares if they wish. Historically, stocks have returned higher than other types of investments over the long term.

However, they do come with a higher level of near-term risk, so it’s important for investors to have a mix of stocks in their portfolios. Many people are exposed to stocks without even realising it, as most employer-sponsored retirement plans invest in a variety of stocks on behalf of their employees.

The price of a stock is determined by supply and demand on the market, as with any other commodity. There are buyers and sellers of the stock on a second-by-second basis, trying to outbid each other to purchase the stock. This reflects the fact that a stock’s value is ultimately only what people are willing to pay for it at any given time.

A stock’s value is often measured using ratios that compare it with similar stocks in the same sector or industry. For example, the price-to-book ratio is a common measure of value for banks, while the price-to-sales or price-to-earnings ratios are more useful for retailers.

Evaluating a stock’s value is essential for investors as it can help them to determine whether they are paying too much for a particular share or that they have found a bargain buy. It can also help them understand how a stock will perform over the long term, which is particularly useful when it comes to asset allocation and diversification.

One way to evaluate a stock is to look at how much it pays out in dividends, as these are paid regularly to shareholders out of the company’s profits. This can help you to evaluate the overall returns on the investment, including adjusting for inflation.

Another way to evaluate a stock is to read Wall Street analyst reports that are put together by professional analysts. These will give you a broad picture of the market, as well as in-depth insights into individual companies. They will typically include a ‘buy,’ ‘sell’ or ‘hold’ recommendation, as well as an analyst price target for the stock. This can be a helpful way to narrow down your search for stocks, especially when you’re starting out.