Companies exist to make money. Their profits are expressed as earnings on a per-share basis. For explanatory purposes so you’ll hopefully understand more clearer what makes stock prices go up, we’ll review our “chosen” company for today – #McDonalds.
I know many people who just loves McDonald’s – especially kids. Ask any kid where do they care to eat at if you gave them a choice and I’ll bet you a Big Mac that most of them will say McDonald’s. Give it a try!
McDonald’s is the world’s largest fast-food franchise network with over $89 billion in global sales. Damn, that’s big! It’s larger than KFC, Subway and Burger King combined. So, let’s take a look and see what makes their stock price go up.
There are three main reasons that make companies stock price rises: 1) the price of their burgers, fries, drinks, etc. has been increasing, 2) McDonald’s continues to expand and find new customers, and 3) they pay a nice dividend. In fact, let’s see what their stock price performances has look like since 1985:
(June 1985) = $3.81/share (June 1995) = $19.56 (June 2005) = $27.75
(June 2015) = $95.64 (June 2020) = $187/share (July 2020)=$197/share
Wow, it looks like they have been doing pretty good! Although, past price performance does not guarantee future results, McDonald’s looks like they’re still kicking some serious buttt! Let’s see why!
For one, McDonald’s has been raising their prices lately. From a recent visit, I’ve noticed that their prices for a combo-meal is $2.00 more than a year or two ago. With many more people cooking less and eating more fast-foods, groceries and food chains has no choice but to increase their prices. So, sequentially, McDonald’s is following their lead. From the looks of it, those prices surely aren’t keeping customers away. They continue to expand their operations throughout the world with hardly any repercussions. It’s a fast-food, microwave world and their systems are perfect for today’s societal eating choices.
What also makes a stock price goes up is the volume. The volume is the amount (total number) of shares (stock) traded doing a given period of time. So, for example, if McDonald’s total volume (buys & sells) for a particular day was 4 million shares and the stock was up, that’s an indication that there were more buyers purchasing the stock that trading day versus those who were selling it. If the stock price went down that day, that means there were more sellers than buyers on that day.
Finally, we indicated earlier that McDonald’s pays its shareholders(those of you who own the stock) a dividend. Dividends are payments made by a company to owners of the company’s stock. They are a way for companies to distribute revenue back to investors. For example, McDonald’s pay’s its shareholders $5.00/per share of each stock they own. So, if you own 100 shares of McDonald’s stock, you” receive an additional $500 annually.
There you have it. The reasons that McDonalds stock price has risen over time is because: the prices of their burgers, fries, drinks, etc continues to increase, so their expected earnings for the company has been positive; there are usually more buyers than sellers on a given day (the volume), and they pay their stockholders a nice dividend. That sounds nice to me. I’ll take a coke!!!