What Are the Pros and Cons of Corporate Stock?

Malcolm Tatum

Corporate stock is shares of stock issued by a business and sold to investors. Depending on the nature and type of the shares, the stock may be made available to employees as well as outside investors. As with any type of investment, there are some benefits to purchasing and holding shares of corporate stock, as well as some potential drawbacks. The pros and cons usually focus on the financial stability of the corporation involved, the potential of the shares to generate returns over time, and the degree of risk associated with ownership of those shares.

Man climbing a rope
Man climbing a rope

One important aspect of corporate stock to consider is the financial stability of the business that issues the shares. Assuming the business is financially sound, has a positive reputation within the business community, and sells goods and services that consumers find appealing, there is a good chance that the company will remain strong for a number of years. If there are indications that the business is financially troubled or that the products offered by the company are not likely to fare well in an upcoming economic reversal, it may be a good idea to sell off any shares currently held in favor of something that will be more stable during the years ahead.

Discerning the growth potential of the corporate stock under consideration is also important to deciding if the deal is a good one or is not worth the investor’s time and effort. Evaluating growth potential involves understanding the past history of the stock, especially how it performs under different economic circumstances and shifts in the marketplace. Along with being aware of past performance, it is also important to consider how well the stock is doing in the current climate, and how long that climate is likely to continue. From there, projecting how the corporate stock will perform in anticipated market conditions will help the investor decide if the returns are worth the effort. Unless the investor considers the returns equitable, then the deal should be avoided and attention focused on other investment opportunities.

Risk is a huge factor when it comes to weighing the pros and cons of corporate stock. Here the goal is to ascertain if the anticipated returns are worth the risk associated with owning the shares. To a degree, this requires the subjective opinion of the investor, since what one considers a reasonable degree of risk in light of that return may be considered unreasonable by a different investor. Unless the investor considers the volatility of the corporate stock to be in line with the most likely rate of returns projected, it would be better to move on to some other investment that offers both risk and returns that are considered more equitable.

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