A Big Fall in a Popular Stock
PayPal is a well-known global payments company that has been in the market for many years. The company is listed on Nasdaq. Today, the stock price is close to $40. But just four or five years ago, the price had reached around $320. After making that top around 2021–2022, the stock started falling. Even after some periods of sideways movement, the price kept going lower.
Business Is Growing, But Investors Are Not
Looking at the chart, many people may think that the company’s business must be doing badly.
But the reality is different. The business is still growing. Net income is increasing and the company continues to operate well. Yet shareholders are not making money. This situation teaches a very important lesson about the stock market.
Stock Price Can Move Opposite to Business
A stock price can move in the opposite direction of business growth for a long time. Sometimes the market builds very high expectations. During the big rally, many people may have believed that the company would keep growing very fast for many years. The business is still growing today, but maybe not at the same speed that people expected earlier.
The Risk of Looking Only at Earnings
Many investors try to connect stock price directly with earnings growth, revenue growth, or profitability. But depending only on these numbers can be risky. If someone buys a stock just because the balance sheet looks good or the quarterly result looks strong, there is a chance of disappointment later.
The Market Always Looks Ahead
The market usually moves by looking six months or more into the future. When a quarterly result comes out, it only shows what happened in the past three months. For example, a result announced in April shows business performance from January, February, and March. This is like looking at a snapshot of the past. It does not clearly tell what will happen next.
Why Results Alone Cannot Help You Win
Most of the information about a company is already known by the market much earlier. By the time a quarterly result becomes public, the market has often adjusted the price. In today’s world, information spreads very fast. Because of this, making money only by reacting to quarterly results is extremely difficult. Investors need to remember that the market often moves before the news becomes official.
