Stocks, also known as equities, are securities that represent partial ownership stakes in companies. Investors buy and sell them to grow their wealth over time. A company’s performance, in turn, drives its share price, which is determined by supply and demand in the market.

Stock prices are volatile and can rise or fall for a variety of reasons, from general market fluctuations to specific events affecting the company or industry. Investors must understand how stocks work and what they are getting into before making investments. Diversification with other assets can help mitigate risk and increase the odds of success.

Many investors rely on metrics, simple calculations and qualitative analysis to determine a stock’s intrinsic value before purchasing it. This is often done by comparing the share’s current market price to its historical and intrinsic value, which helps the investor make informed decisions about whether or not a stock is over- or undervalued.

One of the most important aspects to consider when evaluating a stock is the company’s growth potential. If the company is growing its revenue faster than its competitors, it will be more likely to see its stock rise in value over time. Another factor to look at is the company’s cash flow. A stable stream of income is essential for any business, and a company with an abundance of cash can often command higher prices than those that struggle to produce a steady income.

In addition, a company’s growth can be influenced by seasonality and market cycles. Some sectors, like travel and consumer goods, tend to see greater demand at certain times of the year, while others experience slower growth or a decline in demand. Additionally, market cycles may emerge from changes in technology or a boom in a particular sector.

The other main way that investors make money from stock is through capital appreciation, which is the increase in a company’s stock price over time. This can be achieved through either buying low and selling high, or going short–which involves borrowing a stock that you think will fall and then buying it back later at a lower price, pocketing the difference.

A stock’s value can also be affected by its dividend payout. In order to receive a stock’s dividend, investors must purchase the stock before the ex-dividend date. However, a company’s dividend payments can be affected by financial results, business plans and macroeconomic trends.

Valuing a stock can be complicated, but it’s an important exercise for any investor. By comparing the value of a company’s shares to similar companies in the market, you can see whether or not a stock is over-valued or under-valued. In addition, valuing a stock can also give you an idea of its potential earnings growth, which is another key factor to consider.