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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 Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

Image courtesy of Master isolated images at FreeDigitalPhotos.net

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I have had a few people ask me for a quick tutorial on how to calculate the free shares using the GOPM method (Grow on Other People’s Money). I teach this system in my book, The Confident Investor. I describe the technique in that book but maybe a few more examples are helpful.

Since this tutorial is only interesting to the readers of my book, only those registered readers will see the rest of this article. If you haven’t read my book, The Confident Investor, then you may not understand how you can have free trades based on GOPM. 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 these additional examples. If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.

Which brings me to the big set of questions. Shouldn’t you own this book? Does your investment strategy beat buy-and-hold? Do you even have an investment strategy? If your strategy beats buy-and-hold, does it beat GOPM – Grow on Other People’s Money?

You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in ebook formats for Nook,Kindle, and iPad. It may be available at your favorite bookstore as well but you may have to ask.

[s2If current_user_can(s2member_level1)] Profitability Example 1
The basic math is actually quite easy. Let us say that you bought 100 shares of Company XYZ for $30 per share. For this use case, assume that Company XYZ has increased in price to $34. Using the tools in the book, you feel that the stock is about to drop in price. You want your original investment to be pulled out of the stock but want to keep the free shares growing.

You originally invested $3,000 in the stock plus you paid your broker $10 for a total of $3,010. When you sell those shares, you will pay your broker an additional $10 for a total of $3,020. You now need to divide that total investment by the current selling stock price which is $34. $3,020/$34 = 88..82. This means that you need to only sell 88.82 shares to completely get your $3,020 back into your account. Since you cannot sell partial shares of a stock, you will sell 89 shares at $34 giving you a total of $3,026 in your account. You have an additional $26 to invest in your next company along with your original $3,000. The most important thing is that you have 11 shares of XYZ Company that are absolutely free.

Rather than the above word problem that reminds me too much of nightmares of elementary math class, let’s put this into a formula.

(Original investment + commission to buy + commission to sell) / current stock price = number of shares to sell

Profitability Example 2
Another word problem is now appropriate. You bought 140 shares of MNO Company for $52.18 and your broker charges you $8 per trade. MNO is now currently selling at $56.62. Plugging this into the equation above gives us:

((140 x $52.18) + $8 +8) / $56.62 = 129.30 shares. Therefore, you would sell 130 shares and have 10 shares to continue to grow.

Good luck with your investments!

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