Profit Maximization and Stock Price

Does profit maximization help to maximize stock price? The general belief is that the maximization of profit increases stock prices and argues higher firm value. But, it is not always true. Short term profit can be maximized  but the long term effect of such strategy can be quite contrary to stock price maximization. For example, short-term profit can be maximized by reducing research and development expenses and other expenses but this can have long term negative impacts. It is important to consider how profit maximization affects the factors that influence the stock price. The factors that generally have effect on stock price are:
- Earning per share
- Level of risk
- Timing of earnings and the present value of future cash inflows
- Financial leverage
- Dividend policy, and
- New investment

Maximization of profit and stock price may not coincide in all ccases. Profit may be maximized but it may not increase stock prices. Therefore, it is necessary to assume that profit maximization does not necessarily contribute to stock price.