Why do stocks that don’t pay any dividends change price when the company does better? I don’t understand why (non-dividend paying) stocks increase in price when a company is successful; is it just because everyone expects that everyone else will find it more valuable because the company is doing better? Is the link between this type of stock and the company really just psychological? If investors are getting something other than dividends or just “ownership,” from buying this type of stock, what is it?
Even if a company pays no dividends, its price will usually reflect its &quot;fundamentals&quot; or &quot;how well it's doing&quot;. This is because:
If the price is too low (relative to any metric, be it earnings, growth, etc.), then anyone can profitably launch a takeover/acquisition bid.
Example. A company has 1B shares each priced at \$1 (so market cap is \$1B), pays no dividends, and earns \$100B (profits) per year. Then one could buy up all 1B shares for \$1B, own the company entirely, and enjoy \$99B in profits in just the first year alone.
(Second and third paragraphs are identical to another answer I gave.)