Playtech: What determines the share price?

[AMADEUS]

The price of PLAYTECH shares is notoriously volatile but what I do not understand is how the market in the shares is made. Business Economics Theory 101 holds that, other things being equal, in a rational market prices are determined by supply and demand; when demand is high relative to supply price will rise and when the reverse holds prices will fall.

The market in these shares does not appear to behave rationally with gyrations in prices more akin to those expected of a speculative penny stock rather than a very successful well-established international company with excellent growth, low borrowings,a huge cash pile and a NAV almost twice its current stock market valuation. Take last Friday for example. The total volume of shares bought was around 1.4M (<0.5% of the total issued)) with around 0.7M sold so one would have expected the price to rise, Similarly this morning on extremely thin trading the price has again fallen when the buy trades have exceeded the sell trades by about 2:1.

On this basis the market in the shares in this company is behaving irrationally which is very worrying. The striking feature about the share price is how large price movements are triggered by extremely thin trading. With around 313M shares issued one would not expect significant daily price movements to be triggered when the total trading in the shares is well below 1% of this market total.

If the market behaviour of the share price of a FTSE listed company does not obey any rational rules how are us ignorant punters supposed to make rational investment decisions? Can anyone out there you throw any light on how the market in the shares of this particular company are made?

[dspp]

Moderator Message:
Moved from Brokers to Share ideas. I suspect the answer has more to do with market issues than broker issues. But happy to be corrected. dspp

[PeterGray]

The total volume of shares bought was around 1.4M (<0.5% of the total issued)) with around 0.7M sold so one would have expected the price to rise, Similarly this morning on extremely thin trading the price has again fallen when the buy trades have exceeded the sell trades by about 2:1.

There is a fundamental misunderstanding here. The quoted numbers of supposed buys and sells are meaningless. They are determined, by websites such as ADVFN, on a purely automatic basis - on the assumption that a trade that takes place below the quoted mid is a "sell", and one above is a "buy".

This ignores many things - not least that any share bought is sold by someone else. True for some, but by no means all, companies, market makers may take short terms holdings in shares, but normally in very small amounts relative to what's traded. Secondly, not all trades are reported via sites such as ADVFN. Thirdly, there is normally no allowance made for late reported trades where the mid may have moved since the trade. Finally, and probably most important - not all sells take place below the mid, or buys above.

In sum - buy/sell estimations are meaningless and generally best ignored.

Peter

[AMADEUS]

Thank you Peter for the very helpful clarification.