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Ankita Katdare
Ankita Katdare • Oct 14, 2014

How does research work increase a company's stock prices?

I was reading additional material about Samsung's research about 5X transmission speeds and came across an article that said soon Samsung's stock would jump. I've read about it multiple times in newspapers, but always overlooked it.

Could anyone share why & how a significant progress work in R&D department of a company results or converts in increase of its stock price?

PS: My question might be too naive, so please excuse.
Shashank Moghe
Shashank Moghe • Oct 14, 2014
Well, those companies who wont invest in R&D would likely never come across any technical breakthroughs. As such, they have very low chances of making a sellable technology that can earn the company money. Besides, those companies which do invest in R&D, would likely get the inventions copyrighted to them, the IP laws are very strict. This makes the technology proprietary to that company, making them sole owners of it and that gives them the right to make money out of it: exclusively!

Now, it only makes sense that the stock holders (and the public who want to invest) are interested in seeing their company make profits, which directly translates to increased stock prices besides paying them good dividend! The stock market is solely driven by "sentiment", and nothing drives a positive sentiment up than knowing you have invested in a cut-throat technically sound market bull.
Ankita Katdare
Ankita Katdare • Oct 16, 2014
Thanks for that answer. The phrase you used "cut-throat technically sound market bull" is quite self-explanatory. 😁

The relation between a company's R&D and the stock prices has been discussed by Business Insider very well through this chart -


So, the conclusion is that the companies with strong R&D spending will also see the best stock returns.

As you rightly pointed out, a company investing in R&D reflects that it committed to stay ahead in an ever-evolving competitive landscape.

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