Percentage change is a way to calculate the degree of change in a stock over a specific period of time using simple arithmetic. This metric is useful to investors, who use it to compare stocks with different price movements.
Let’s go over how to calculate percentage change and how investors use it when reviewing stocks.
Definition and Examples of Percentage Change
In stock trading, the percentage change is a metric that uses simple arithmetic to find what the relative change in a stock price is over a specific period of time.
The percentage change could be, for example, the year-to-date (YTD) percentage change, the change since the trader started the position, or the change so far in the trading day.
The formula for percentage change is: (New Price - Old Price) / Old Price x 100. The percentage change will be positive if the stock price has gone up and negative if the stock price has gone down.
Let’s take a look at an example of how percentage change can be used when looking at Netflix. Say Netflix closed at $603.35 one session and by 3 p.m. the next trading day, was trading at $636.47, up $33.12. Through virtually any trading platform, an investor could see at a glance that Netflix shares were up 5.49% at 3 p.m.
This percentage change was calculated (automatically by trading platforms) by subtracting $603.35 from $636.47 to get $33.21, then dividing by $603.95 and multiplying by 100.
Depending on an investors’ buying strategy, they may want to buy or sell shares depending on that price movement.
How Percentage Change Works
Calculating percentage change is fairly straightforward with these steps:
- Step 1: Determine the original stock price and the new price.
- Step 2: Calculate the amount change by subtracting the original price from the new price.
- Step 3: Divide the change by the original price.
- Step 4: Multiply by 100.
Percentage change works simply by giving investors a quick look at what a stock’s movement means in the context of the whole price of the stock.
We divide by the old number because percentage change is meant to show how much the stock price has changed relative to the former price. This way we know at a quick glance how significant the change is and we can more easily compare the change from, say, year to year or company to company.
Let’s explore another example of percentage change with Netflix stock, only this time with a year-over-year percentage change from Sept. 28, 2020, to Sept. 28, 2021.
First, you can use a trading platform or online tool to find the two prices. The original 2020 price was $490.65 and the new 2021 price was $583.85.
Next, you can calculate the change over the time period by subtracting $490.65 from $583.85 to get a change of $93.20.
Finally, divide 93.20 by 490.65 and multiply by 100 to find the percentage change, which is 19%. So, for that year period, Netflix shares increased 19%. Investors can then compare that figure to how Netflix performed in the past, how its competitors are performing, and how the broader market is performing, among other uses.
Other Types of Percentage Change
Aside from share prices, stock investors can use percentage change when looking at other key financial figures of a public company.
Companies often include these percentage changes for various metrics in their public financial reports. You can calculate, for example, the percentage change of revenue, income, and other metrics.
For example, Netflix used percentage change in its second-quarter 2021 letter to shareholders:
Q2’20 | Q3’20 | Q4’20 | Q1’21 | Q2’21 | |
Revenue (in millions) | $6.148 | $6,436 | $6,644 | $7,163 | $7,342 |
Y/Y% Growth | 24.9% | 22.7% | 21.5% | 24.2% | 19.4% |
You can see Netflix had a year-over-year (Y/Y) revenue growth of 19.4% in the second quarter of 2021 compared to the same quarter in 2020. At a glance, you can also see that the percentage change is not as high as it was in the first quarter of 2021 when year-over-year revenue growth was 24.2%.
So, with percentage change, investors can see that the rate of revenue growth may be slowing, even when revenue is increasing. And they can use that information, along with other metrics, to help them with their investing decisions.
Key Takeaways
- Percent change is a simple metric that compares a stock price at one point in time to its price at a different point in time.
- Percent change helps investors quickly identify how significant a stock movement is.
- Calculate percent change by subtracting the original price from the new price, divide that number by the original price, and then multiply by 100.