This is aside from the hope of dividends rising or dividends in the future. If this doesn't always happen, what is the correlation? In other words, approximately what percentage of the time when earnings rise significantly, does the stock price rise significantly? Is there a pattern like: sharp rise on anouncement, fall-off with profit taking, then a gradual rise thereafter? Thank You.
generally speaking, yes, when a company's profits increase, the stock price goes up.
when you own a stock, you own a share of that company, and thus you own a portion of those profits. this is known as EPS, or earnings per share. so if the company earns more, your share of those earnings is worth more. conversely, if a company makes less, then the shares are worth less.
however the relationship is a bit more complicated in practice. what makes the market frustrating yet beautiful at the same time is that human emotion is involved. you have analysts and ceo's making predictions as to how much the company will earn. often these predictions are overblown, so if the company does well, but not quite as well as the liberal predictions, then you have a lot of people overreacting to the news and perhaps selling the stock, driving its price down. this is often a great time to buy, because there are no fundamental problems with the company, and yet there is an artificial depression in the price. after a few weeks or months, people will forget about the predictions and see that the company is healthy and going strong, and the price will rise to a normal level again.
you also have situations when earnings will be very high, even outdoing expectations, but the company will issue a negative future outlook, so investors will get scared and sell, even though the earnings for that quarter or year were great.
also as you noted, sometimes investors will sell after a long run-up, taking their profits. this causes a small drop in share price. this can also be seen as a natural market correction to a stock price that has gone up faster than a company's performance, and falls back into line.
then there are completely unrelated situations like 9/11, the war in iraq, hurricane katrina, etc, that may have little or no direct impact on the company and its earnings, but drive the market lower or higher. look at how market prices reacted after 9/11 (huge drop). or after the US went to war in iraq (steady rise).
over the long run, I would argue that markets are efficient, meaning that if a company is profitable and does well, the stock price will rise, and if it does poorly, the stock will will fall.
over the short term, prices are impacted by the things I noted above, as well as others, that have little to do with a company's long-term performance. these irregularities in price should be seen as possible buy opportunities, if you feel the stock has become undervalued. it is these inefficiencies in the market that allow an intelligent investor to reap big profits.