The stock price of any company reflects investor expectations for the future. If investors expect a company to do very well, and these expectations are reflected in a high stock price, then delivering on those expectations will not increase the stock price; it will merely prevent it from falling. The only way to create sustained increases in shareholder value is to consistently surprise the market with increases in profitability. This is something that few companies have ever been able to do.
Although investors can be quite adept at spotting a winning formula and assessing a company’s ability to exploit it, they are much less able to predict whether or not a company can capitalize on changes in the basis of competition. Therefore, firms that can make these kinds of leaps have a much greater likelihood of surprising capital markets, and thereby creating shareholder value.
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