An Australian startup has found that the stock price of a company is tied to its revenue and profitability.
In a new study, researchers from the University of Melbourne and the Australian National University have looked at more than a dozen companies in Australia.
The researchers say that they have found a “strong correlation” between the price of the company’s shares and its revenue.
“This research shows that companies that are growing and expanding, that are not suffering from high costs and that are operating at low profitability tend to outperform the stock market,” said lead author Professor Kevin Hargreaves from the university’s School of Economics and Finance.
“When the price goes up, the company will be worth more.”
The study also found that companies with higher revenue and earnings were less likely to have low profitability.
The authors note that it is not yet clear how these “revenue-to-earnings ratios” influence the market.
“We don’t know if this is a causal relationship, or whether it’s a correlation,” Professor Hargroves said.
“But we do know that there’s an effect and we can predict the effect by looking at the price and how much it goes up.”
If you have a company with a lower revenue and a lower earnings, the stock will go up, so it will be more valuable.
“The authors say the results of their research should be of interest to all investors.”
It’s a good example of how to look at the market and not just the company, and how to use that as a way of investing,” Professor Andrew Dolan, who was not involved in the study, told the BBC.”
I would not recommend it as an absolute rule, but we have been looking at that and it does have some useful insights.
