On Yahoo Finance, navigate to its Financial page and make sure you are looking at its Annual Income Statement. So, how can we use PE to calculate target price? An example would be best to explain it.
Earnings per share is a company’s net profit for a period divided by the number of common shares it has outstanding. The formula for PE is a company’s stock price at a specific point in time divided by its earnings per share (EPS) for a specific period. PE is a measure of a company’s stock price relative to net income. Remember to always do your research and due diligence before investing. Note: I am sharing this information for educational purposes only. The simple way to calculate a target price is the Price-to-Earnings (PE) Method. There are limitations to it, but in generating a target price, it adds more depth for yourself into the stock you plan on holding for the long-term. It is important to know that calculating a target price is not a definitive solution to where a stock price will go.
Once you understand a stock regarding how its business is run and what kind of trends its price has been experiencing, you can then move into producing a target price. When it comes to producing a target price, you should first do your fundamental and technical analysis. Finding a target price does not need to be complex, which is why I will be showcasing to you a simple way to find the target price of a stock. The issue is that a discounted cash flow can get a little complex. There are many different models that analysts will use to produce a target price, with a discounted cash flow being one of the more popular models. You have probably seen various analysts giving target prices for companies such as Apple, Microsoft, and Amazon. A target price is an estimate of a stock’s future price.
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