If we want to assess stocks and potentially make forecasts, we need data to do analysis. Price is readily available data, so let’s look at Apple’s stock price:
Beyond price, there is so much more data out there for companies, it’s just not as immediately easy to gather. A great next metric to look at for Apple would be earnings (which is also called net income on the income statement):
The challenge with earnings, as opposed to price, is that it’s only released on a quarterly basis. The difference in frequency between the first chart and second chart is obvious. So, let’s take price and convert it into a quarterly format:
Now we’ve got two charts that look more comparable. Although, they clearly aren’t the same. That’s a critical point - earnings/net income is not directly tied to stock price.
There is a relationship but for any given stock or period of time you can’t guarantee some neat mathematical link - this is the real world after all. So, we definitely have more analysis to do. Stay tuned!
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