ELI5 why stock that doesn’t pay dividends increases in value

Well a stock is just purchasing a portion of the company. If today the company is worth $100 and there are 100 shares, if there was a vote to dissolve the company each share holder would get a $1. So logically a good starting point to sell a share at is $1. Then tomorrow if the company made a bunch of money and is now worth $200, it probably makes sense that people would be willing to pay $2 for it, so the price went up.

Then to add to that, there's forecasted growth. So if today it's worth $100 but I think they will be worth more tomorrow I'm willing to pay more than the $1, maybe $1.50 since I'm not 100% certain the value will go up, but I want to get in before they make all their money.

Stock prices are one of the few examples of how theoretical supply and demand economics work in terms of setting prices. As soon as someone is willing to pay more for a stock, someone will be there to raise the price to sell it to them. Unlike a normal store where you may be willing to pay $2k for a TV, they won't up the price to make more money on you, they will keep the price at $1k.

/r/explainlikeimfive Thread