How Can A High Stock Price Be Bad For A Company?

How does the stock market work?  Many investors believe that stocks rise and fall based on fundamentals in comparison to industry competitors.  Although, many stocks do rise and fall on fundamentals, there are still many more factors that have an impact.  For instance, the price of a stock has a big bearing on whether or not it will rise or fall.  Even if a company’s fundamentals are good, their price can still make the stock fall.  How?  When a stock price gets to expensive, as compared to industry competitors, a correction in that stock is likely to occur.  An expensive stock, for the most part, is when the price to earnings ratio of company is more than two times its growth rate. 

26 July 2008 | Business