WHAT DOES “PRICED INTO THE STOCK” MEAN?
You may hear from time to time someone saying something like the bad news is already priced into the stock. Or it can be good news also that is priced in. What does that mean?
As I have talked about many times, stock prices are more dependent on what people think will happen to a company in the future than on what is happening right now. They are always trying to figure out what the prospects for a company are down the line and whether good or bad things are ahead. What is happening today is important but often not as important as the future.
There are a million things that can happen to a business including both bad and good things. When someone says that the bad news is priced into a stock it means that people already know about the bad news and the stock has moved accordingly. If, for instance, a company gets sued that might negatively affect the stock’s price. But once the stock price does go down then you could say that bad news is already priced into the stock. People know about the suit and people who wanted out are out and people who want to hold on are still in.
When a company announces a new product line, that is usually good news. People then evaluate just how much they believe the new line will help or hurt the business’s bottom line. After all, not all new products are winners and a new product may turn out to be a losing idea. However, most new product launches are good otherwise the company wouldn’t be doing them but once the word is out, the stock price will start to move. After a while, all the good news about the new product line will be priced in the stock. Any further news about delays or cost increases or whatever may further move the stock price from where it settles.
When you are learning how to buy stocks online, there are always a lot of buzz words and phrases that you hear and wonder what they mean. Something being priced into a stock simply means that everybody already knows about the news and the stock price has moved either up or down in response to that news. Any further unknown developments could move the stock again but for now, the stock has settled to the place where it belongs.
