When the share price of an issuer fluctuates, particularly when it declines, many people tend to interpret it as a sign of internal problems of the issuer, which could be caused by declining earnings, high levels of debt, loss of competitive advantage and shifts in industry trends, etc.
What is Market Price and Intrinsic Value?
Many investors often confuse a share’s market price with its intrinsic value. The market price is the current trading price of a stock, based on supply and demand. It can fluctuate rapidly due to various internal and external factors and market sentiment. In contrast, the intrinsic value is an assessment of the company’s potential and true value, based on financial statement analysis and future cash flow.
Future Cash Flow refers to the expected income and expenses of a company in the future, which plays a crucial role in analysing and evaluating the company’s financial condition and potential of business.
Understanding the factors that influence share prices can help investors make well-informed decisions. What are the key factors that can lead to fluctuations in share prices and trading volumes in the market?
- Internal Factors: Refers to the factors related to the business operations of the issuer that can influence the share price, such as:
Financial Statements: The quarterly, semi-annual and annual financial statements of the issuer can influence its share price. If the reports demonstrate profit growth, effective income and expenditure management and business resilience, those will enhance the issuer’s attractiveness and build greater investor confidence which makes investors more willing to give a higher price.
Dividend Distribution Policy: If an issuer adopts a high and regular dividend distribution policy, it tends to attract investors, as they receive return from the shares they are holding, which makes them more optimistic and confident in the issuer and can lead to positive movements in the share price. Conversely, if the issuer changes its policy and decides not to distribute dividends, retaining all profits as investment capital for business expansion, some investors may choose to sell their shares and invest in other company’s share that offer more regular dividends. This shift could lead to a decline in the share price of the company. In cases, where an issuer does not distribute dividends, investors should review the company’s plans to assess its potential for profit growth before deciding whether to buy or sell additional shares during the declining of share price.
For example: in February 2023, the share price of Sihanoukville Autonomous Port (PAS) fell from KHR 14,000 to KHR 13,000 per share. This decline of the share price was not an indication that the issuer was facing any difficulties, but rather reflected investors’ evaluations and expectations regarding the issuer’s dividend distribution policy and the global economic situation at that time. Despite the decline of the share price, PAS was able to generate approximately KHR 92 billion in total revenue and earn net profit of approximately KHR 30 billion in the second semester of 2023. In addition, PAS has experienced rapid development and reached an annual container traffic volume of 1 million TEUs, which demonstrates the resilience of the issuer’s strong operational performance, business resilience and growth potential in this sector.
Issuer News Releases: Share prices often fluctuate based on information that may influence an issuer’s business performance forecast such as the discovery of new technologies or products that could disrupt the market and outperform competitors, changes in leadership or key personnel, winning or losing major revenue-supporting projects and involvement in significant lawsuits.
For example: In 2024, Grand Twin International (Cambodia) Plc (GTI) reported a sharp increase in export orders to international markets, particularly from the supplying well-known clothing brands such as POLO, PUMA and New Balance. The release of this information drew strong interest from investors, leading to an increase of the company’s share price to from KHR 2,800 in the first quarter of 2024 to a peak of KHR5,400 in the fourth quarter of 2024, an increase of approximately 93%. This surge indicates that issuer announcements can positively influence sentiment and drive share price upward in the market.
2. External Factors
Interest Rate Factor: There is a negative correlation between interest rates and share prices. When interest rates rise, share prices tend to decline. Conversely, when interest rates fall, issuers are able to borrow larger amounts of capital at lower interest rates, which can lead
to increased profits. However, if interest rates rise significantly, investors may receive lower returns, causing share prices to drop.
Economic and Political Factors: Economic uncertainty and political instability are major sources of risk that can lead to a decline in market momentum and affecting daily stock trading values. As of the first quarter of 2025, the average daily trading value on the Cambodian Stock Exchange (CSX) had fallen to approximately $130,000 per day, mainly due concerns over the global economic outlook.
Natural Disaster Factors: Events such as natural disasters and global pandemics, most notably Covid-19, have significantly impacted global share prices. However, the situation of the CSX is a contrasting trend. This is largely because investing in the CSX requires relatively low capital and is easier to convert into cash than investing in other sectors asset and has a regulatory mechanism that limits daily share prices fluctuations within ±10 percent.
3. Market Sentiment
Market or investor sentiment is a reflection of an investor’s emotional or perceptions regarding overall market conditions. Investors often make investment decisions based on their personal feelings or the bandwagon effect, rather than on relying on fundamental and technical analysis. Market sentiment is difficult to measure and manage, as it lacks a clear analytical foundation. However, it can have a significant short-term impact on share prices movements. As a result, even financially healthy issuers may experience a decline of share prices due to negative market sentiment.
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For example: When a new company goes public, some investors may sell their existing shares to reinvest their capital in new shares. As a result, the price of the new shares will tend to rise due to increased demand, while the price of existing shares may decline as they are sold off.
Fluctuation of share prices, especially price declines, do not always indicate that the issuer is facing problems. Therefore, investors with spare capital should carefully consider these factors before making investment decisions based on the issuer’s business stability and growth potential in order to enhance profit opportunities and reduce risks.
***Disclaimer: This article has been compiled solely for informative and educational purposes. It is not intended to offer any recommendations or as investment advice. The Securities and Exchange Regulator of Cambodia (SERC) and Post Media Co Ltd are not liable for any losses or damages caused by using it in such a way.