Stock prices

Q Is a company with a $75 stock price bigger and financially healthier than one with a $25 stock price?

— S.K., Midland, Michigan

A Not necessarily. A stock price alone doesn't tell you very much. You need more information, such as how many shares there are: If the first company has just 1 million shares, its value would be $75 million, while if the second company has 1 billion shares, it would be valued at $25 billion. Another useful measure might be how much income the company has been earning per share.

To get a sense of a company's financial health, check its financial statements, such as its balance sheet and income statement. You can see, for example, how much cash and debt it has and how quickly its revenue and earnings are growing.

A company with slowing sales and rising debt is not likely to be attractive at any price. Instead, a promising investment would be growing briskly, widening its profit margins and gaining market share — all while seeming to be undervalued by other investors. That's true no matter what its share price.

Remember: A $2 stock can really be “worth” only $0.10 per share, while a $500 stock might be worth $1,000 — and be headed there, too.

Q

What's an “orphan drug”?

— A.H., Greenville, North Carolina

A

It's a drug developed to treat a rare disease or condition — one that affects fewer than 200,000 people in the United States.

As you might imagine, pharmaceutical companies are unlikely to pursue treatments for such conditions without millions of customers helping them recoup their development costs. That's why the Orphan Drug Act of 1983 was passed, to provide them financial incentives to do so.