Final answer:
Predictive value in financial reporting indicates that stock prices are largely influenced by future expectations, not just current or historical performance. Investors aim to identify undervalued companies that may outperform expectations, affecting stock prices.
Step-by-step explanation:
The concept being discussed is related to the predictive value in financial reporting, an aspect of the statements of financial accounting concepts. The predictive value is crucial in the determination of stock prices, as it is based on the expectations about a company's future performance rather than its current or past profitability. The implication of this is that for an investor to predict whether the stock price of a company will rise, one should focus on identifying companies that are currently undervalued by the market but have the potential to exceed expectations in the future. This dynamic is driven by the market's collective expectations shifting, which, in turn, can lead to shifts in stock prices. Stock market analysts and individual investors spend countless hours researching companies to identify these potential 'shining stars.'