Remember, a trend, once established, tends to persist. So if you're convinced a stock's trend is up and you're convinced the business is capable of great earnings growth in the years ahead, you should buy. At the root of this, you will generally find a shifting change in the public's perception of the company. We call it sponsorship. As more and more people come to develop improved opinions of the company, it's natural they will buy more of the stock and drive it to higher prices.
Companies are in business to make money.
Thus, earnings are the ultimate score card. Companies that can grow their earnings rapidly and do it repeatedly see their stock prices rise to reflect their success. Conversely, companies that stumble on their growth path see the price of their stock fall. Investors are always looking ahead to what they believe the company's earnings will be in the future. Thus investors' perceptions of the company's prospects can be as important as the reality. . . .