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 While stock quotes might seem like a pretty straightforward topic, there is a lot of information that usually accompanies the current price of a stock. Many novice investors might overlook some of that information, but guess what? It's there for a reason.
For example, some of the information that accompanies stock quotes might help you understand where the stock's price might be heading in the short-term. Or it might even help you understand the current stock quote relative to historical prices. The bottom line here is that fully understanding stock quotes is a bit more complex than just knowing the most recent price quote.
Stock Prices and Quotes
Whenever you look at a stock quote, you're going to find some standard bits of information. First off, 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 simply 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.
Remember, one of the purposes of a stock exchange is to match up 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 / 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
Other information you'll typically 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 price for a stock during the current trading day.
- 52 Week High and Low - These are the highest and lowest selling price for a stock over the previous 52 weeks.
- Previous Close - This is the price of the stock at the close of the previous trading day.
- Opening Price - This is the price which was paid for the first stock traded on the current trading day.
By examining this historical stock price information we can hope 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 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 good 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 information we'll look at relative to the stock quote is the market capitalization, or simply market cap, institutional ownership and shares outstanding.
- Total Shares Outstanding - This is simple the total number of shares the company has issued to the marketplace.
- Market Cap - The market capitalization, or market cap, is the total shares multiplied by the current stock price. For example, if Coca Cola's stock price is quoted at $41.63 and they've got 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 institutions that might trade in significant volumes.
By looking at these elements, along with the stock quote, we can learn how big a company is in terms of value in the marketplace. In this example, Coca Cola is a $98.6 billion dollar 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 thing 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 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.
So 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%, Coca Cola would be expected to go down 4.9%. If you're not used to the daily price fluctuations that can happen when owning stocks, then you might want to steer clear of stocks with a 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 to evaluate stocks.
About the Author - Understanding Stock Quotes
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