Understanding Stock Quotes

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While stock quotes might seem like a fairly straightforward topic, there is a lot of information that accompanies the current price of a stock. Many novice investors might overlook some of that information, but it's there for a reason.

For example, some of the information that accompanies stock quotes might help the investor to understand where the stock's price might be heading in the short-term. Or it might even help an analyst to understand the current stock quote relative to historical prices. The bottom line is that fully understanding stock quotes is a little more complex than knowing the most recent price quote.

Stock Prices and Quotes

Additional Resources

Whenever you look at a stock quote, you're going to find some standardized information. Initially, you will see the current trading price for a stock. Embedded within that price are two concepts: a stock's bid and ask prices.

Bid Price of a Stock - The bid price of a stock is the price that someone has offered to pay for a stock.
Ask Price of a Stock - The ask price of a stock is the price at which a holder of a stock is willing to sell that stock.

One of the purposes of a stock exchange is to match buyers of stock with sellers of stock. Beyond the current price of a stock, there are two more elements that usually accompany the quote: the most recent price relative to the prior day's closing price, and the percentage change in price from the prior trading day.

Stock Quote Example

For example, if we look at Coca Cola, we might see:

KO 41.63 -0.28 -0.67%

This stock quote tells us that Coca Cola (KO) is currently trading at $41.63 per share, which is $0.28 less, or 0.67% less, than the price at which it closed on the previous trading day.

Historical Stock Price Information

Some of the other information you may see when looking at a stock quote is historical stock information. This information includes the daily high and low, the 52 week high and low, as well as the previous close and the day's opening price.

Daily High and Low - These are the highest and lowest selling prices for a stock during the current trading day.
52 Week High and Low - These are the highest and lowest selling prices for a stock over the previous 52 weeks.
Previous Close - The price of the stock at the close of the previous trading day.
Opening Price - The price which was paid for the first shares of stock traded on the current trading day.

This historical stock price information helps us to understand:

Whether or not the current stock quote is at, or near, a high point for the day or year.
Whether or not the current stock quote is at, or near, a low point for the day or year.
Whether or not the stock's price has been rising, or falling, during the current trading session.
Whether or not the stock's price is higher, or lower, than the prior day's closing price.

By understanding the historical price information relative to the quoted stock price, we can, at a glance, get a better feel for where the stock is trading relative to the recent and distant past.

Market Cap, Institutional Ownership, and Total Shares Outstanding

The next set of stock quote information we'll look at is the market capitalization or simply market cap, institutional ownership, and shares outstanding.

Total Shares Outstanding - This is the total number of shares the company has issued to the marketplace.
Market Cap - The market capitalization, or market cap, is the total shares issued multiplied by the current stock price. For example, if Coca Cola's stock price is quoted at $41.63, and they have 2.368 billion shares outstanding, then their market cap is $98.57 billion.
Institutional Ownership - This is the amount of outstanding shares that are owned by institutions such as mutual funds, banks, pension funds, insurance companies and other financial institutions that might trade in significant volumes.

By looking at these elements, along with the stock quote, we can get a good feel for how big a company is in terms of value in the marketplace. In this example, Coca Cola is a $98.6 billion company, and that makes it a large cap stock. To provide a reference point, small cap stocks might be those companies with a market cap of less than $1 billion.

Stock Beta

Whenever you're evaluating a stock, one value that you should understand is the stock's beta. A stock's beta is a measure of the sensitivity of a stock relative to the overall market or an index. For example, a stock's sensitivity might be compared to the S&P 500 Index. A stock's beta often is shown on the same chart or table as the stock quote itself.

When a stock's beta is over 1.0, this indicates higher volatility than the overall market (or S&P 500). When a stock's beta is less than 1.0, this means the stock's price volatility is less than the overall market.

Stock Beta Example

For example, let's say Coca Cola's beta is 0.49. This means Coca Cola's stock price will move about half as fast, or is roughly half as volatile, as the S&P 500 Index.

Therefore, if the S&P 500 goes up 10%, then Coca Cola would be expected to go up roughly 4.9%. On the other hand, if the S&P 500 goes down 10%, then Coca Cola would be expected to go down 4.9%. If you're not comfortable with the daily price fluctuations that can occur when owning stocks, then you might want to steer clear of stocks with betas over 1.0.

Stock Quotes and Indices

Sometimes you will see a reference to the stock's inclusion in a major index along with the stock quote. This is especially true if the company is large and prestigious. There are usually two elements you will see relative to this measure:

Index % - This is the percentage of the index that is accounted for by this particular stock.
Index Effect - This is the current effect the stock's movement is having on the index.

Stock Index Effect Example

For example, Coca Cola is part of the Dow Jones Industrials. It makes up (at the time of this writing) approximately 3.03% of the Dow Index. During this particular trading day, its Index Effect was -0.24. Meaning it was causing the Dow Jones Industrials to drop by 0.24 points.

This is all you need to understand concerning stock quotes. Next time, we will pick up this series with Earnings per Share Estimates, one of the most important measures used by analysts and investors to evaluate stocks.

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