Example for finding target stock price

target stock price

target stock priceUsing mathematical analysis to determine the target stock price, we can help to insure a great return on investment. If our analysis shows that target stock price is significantly above today’s stock price, the potential ROI is much better.

My book, The Confident Investor, which is available wherever books are sold, can help you decide the target stock price of a company. This should aid you in earning a profit.

If the target stock price is not high enough compared to today’s price, you may do well to find a different investment with a higher target stock price. Much of this analysis will require concepts that are more fully described in my book. To this end, I am restricting the technique discussion to registered readers. If you haven’t read my book, The Confident Investor, then you may not understand how to find the target stock price. In fact, if you haven’t purchased the book and registered here on this site as a book owner then you won’t be able to see this example. If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.

[s2If current_user_can(s2member_level1)] A quick example will make this calculation easier to understand. Let’s pretend that you found a company that has a TWCA of 13%. You know that the company is growing fast enough to achieve your 10% minimum target. Also, pretend the company has an EPS of 6 and a P/E of 20.

Without even looking up the company, you know that P/E multiplied by EPS will give the current stock price, which is $120. The first check is to calculate the Future Value of the EPS in 5 years. Using the format prevalent in most spreadsheets, this would be typed in as: =FV(13%,5,,-6). This gives you an EPS of $11.05.

Assume the P/E growth is stagnant for the next 5 years. This means that the company will have a price per share of 20 times $11.05 or $221.00 (or $221.09 if you use a spreadsheet and do not round the numbers).

Now, you must find out what the price of a stock is today that could grow to $221 at the minimum acceptable growth rate of 10%. You can find the Present Value of that stock price with: =PV(10%,5,,-221.09) which is $137.28.

Based on this calculation, you know the company might grow from $120 per share to $137.28 and still deliver a 10% return on your long-term investment! Therefore, in addition to your desired growth, you are buying this company on sale for a discount of $17.28 per share.[/s2If]

You can purchase my book wherever books are sold such as AmazonBarnes and Noble, and Books A Million. It is available in e-book formats for NookKindle, and iPad.

Image courtesy of Master isolated images at FreeDigitalPhotos.net

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