Advances And Declines

Finance- a la shmoop. what are market metrics? hmm well the number of radishes we sold

on aisle four last week that's a market metric. the number of spills on aisle 12 [mop cleans up wine spill]

last month well that's a market metric. the number of customers who came into

the grocery store wearing clogs last year, that's a market metric. okay so

that's a different market a grocery store but the concepts are the same. [produce shown]

instead of shopping for discounted radishes, well investors are shopping

for stocks that are either on sale or fulfill the need of that night's

financial dinner. the key metrics well price to earnings ratio and there's

a whole open Shmoop video on this one. but that's the price of the stock divided by [equation shown]

its earnings. so let's think about coca-cola K.O. it's trading for 50 bucks

a share and let's also say that they'll only earn 250 this year .only. so it's

market metric of a price to earnings ratio 20 50 bucks - 50 share price

divided by earnings is the price to earnings ratio. it's 20 all right another

metric price to sales- that is how many times revenue is a given stock. for

example Dow Chemical trades at three times revenues it also trades at about

16 times earnings. but why would you care about a revenue multiple isn't the goal

of companies to produce profits not revenue? like who really cares about [100 dollar bill]

revenues? well yeah you actually do. here's why. profits

change dramatically from year to year whereas revenues well they're relatively

steady. that is in a good year revenues from Dow might grow fifteen percent, and [ chart shown]

earnings might be up eighty. in a bad year revenues might decline 3% but

earnings might be down a hundred percent or more. so if you're an investor you're

gonna want some kind of anchor in your analysis that sets kind of a range at

which Dow Chemicals should trade so that you're not getting violently whipped [an anchor sinks into the water]

around by earnings numbers changing so dramatically in the course of a

decade-long market or economic cycle .so those metrics price to earnings and

price to sales revolve around the individual analysis of a single stock.

there are other metrics investors look at like volume. no not that kind of [hand turns up volume know]

volume .volume as. in the number of shares traded on a given

day in a given market like Nasdaq or the NYC, or you know something like. that

so this metric focuses on the number of shares traded in a given stock overall.

so if whatever.com had 20% of its total shares outstanding trade in a given day [power point explanation]

like it had 20 million shares outstanding in four million suddenly

traded in that day versus its normal one percent of shares like on 20 million

normal would be two hundred thousand something like that, so it's had 20 times

the volume in a given day, well what does that mean ?well clearly something

happened for there to be 20 times the normal volume of trading. is there a take [man speaks to camera]

out rumor? Is Google buying it? did they do a secondary and insiders dumped? was

there some good news? bad news? what happened ? what did the stock do? did they

have a great quarter and tons of investors now believe this is

sustainable and they all want in so they buy the stock and it goes up big that

day? or did the company miss a quarter and then they all sell it down by 50% by

the time the day is done, sell more to more sell like that? while stock moves on

big volume usually imply something intrinsic about the stock. something

really good has usually happened and the big volume means that the best analysts

and investors on Wall Street are reviewing the data carefully. the market [man examines computer charts]

metrics. and in whereas a stock might soften 5 ,10 even 20 percent on very low

volume which means that do it's likely people are just ignoring it more or less,

and that stock just fades downward until some analyst rings a bell that whatever.com [man walks away from frowning woman]

has suddenly gotten really cheap and then everyone buys it bids it up to

its proper price. and well that's what makes a market. so it doesn't matter if

you're selling radishes or whatever product whatever.com happens to make

this week, market metrics will help you determine if your company is an

unbelievable success, or if, you know the most epic of fails. [man walks past with baskets of produce]