How Stock Fundamentals Impact the Share Price

Prices will move around, but it gets incrementally harder for market prices to push further and further away from the fundamental drivers of the market

Dan Kemp 8 May, 2017 | 1:32PM

If we have learned anything over the course of financial market history, it is that the fundamentals of the market matter. This is depicted below, demonstrating the gravitational forces of fundamental pricing relative to market pricing.

The relationship between the price return and fundamental return

Fundamentals can be considered an independent measure that acts as our hurdle or gravitational baseline. Prices will move around it, sometimes diverging for up to decades at a time, but we know it gets incrementally harder for market prices to push further and further away from the fundamental drivers of the market.

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About Author

Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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