Stock prices and reality
The stock market has become a wild card lately. More people own stock now than ever before. This means that there are more investors now than there was years ago. With a large number of investors, stocks tend to grow faster than the actual companies. This means that a company with a revenue of 50 billion and a negative operating income can have a market capitalization of more than 200 billion. Most of such companies are in the tech sector. The tech sector has attracted a vast range of investments. This is due to the growth rate of tech companies due to tech adoption by the general public. There are currently more tech companies developing industry disruption technology. Some of these companies are online companies. For example, Netflix disrupted the entertainment industry. Netflix has been a major force to be reckoned with. Companies that offer their products and services online have a huge market capitalization which seems to be disproportionate to their sales. This has led many speculators to assume that we are leaving in a tech bubble. This tech bubble is caused by the mainstream media hyping these new companies.
Stock prices growth
When it comes to the growth of stock prices, stock prices don’t always reflect the growth of a company. This is due to the fact that stock prices often show how investors feel about a certain company. If investors believe that a company is going to grow rapidly in the next couple of years there are going to back the company and buy more stock. This results in the stock price growing.
Stock prices and reality check
There is always a reality check in stock prices. This is the main reason why stock prices fall during a tech bubble or when investors stop believing in a certain company. The fact about bubbles is that they always burst.