Term:CHEAP

The meaning of the word “cheap” in the share market is not the same as it is in common parlance. When a share is regarded as cheap, then it is perceived to be trading in the market for less than its true value. This has nothing to do with the absolute price of the share – thus a share trading at R10 can be regarded as being very expensive while another trading for R100 might be very cheap. The point it that a share’s value is related to the company’s ability to generate consistently rising profits and dividends over time. The directors of a company can issue more shares or reduce the number of shares in issue whenever they feel it is necessary – and this obviously changes the price that they trade in the market, but shares represent a business – which is either expected to be profitable or not – and that profitability in relation to the share’s price determines whether it will be regarded as cheap or not.

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