If you look at stock prices over any year, you will find a high and low stock pr
ID: 2632008 • Letter: I
Question
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company:
What is your high target stock price over the next year?
What is your low target stock price over the next year?
Please show me how you do your calcualtions i dont undertstand how to do the standard deviation
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company:
Explanation / Answer
We have given that:
Year 1
Year 2
Year 3
Year 4
High price (in $)
99.3
122.9
132.3
148.93
Low price (in $)
74.13
90.24
70.92
117.45
EPS (in $)
8.58
10.33
11.41
12.8
As per information given in the question, we can use PE ratios to calculate a high and a low stock price for the next year. So, now we will calculate the PE ratios first.
PE ratio: A valuation ratio of a company's current share price compared to its per-share earnings. It is calculated as:
= Market Value per Share / Earnings per Share (EPS)
Year 1
PE ratio (year 1)
Year 2
PE ratio (year 2)
Year 3
PE ratio (year 3)
Year 4
PE ratio (year 4)
High price (in $)
99.3
11.57
122.9
11.90
132.3
11.60
148.93
11.64
Low price (in $)
74.13
8.64
90.24
8.74
70.92
6.22
117.45
9.18
EPS (in $)
8.58
10.33
11.41
12.8
Expected EPS (year 5):
= $12.80 + $12.80*5%
=$13.44
Forward P/E:
A measure of the price-to-earnings ratio (P/E) using forecasted earnings for the P/E calculation. It is calculated as:
= Current share price/Expected EPS
Forward PE ratio for high price = Current share price/Expected EPS
= $148.93/$13.44
=11.08
Forward PE ratio for Low price = current share price/Expected EPS
= $117.45/$13.44
=8.74
High & Low target stock price over the next year:
Year 5
Forward PE ratio
High price (in $)
148.92
11.08
Low price (in $)
117.47
8.74
Expected EPS (in $)
13.44
Year 1
Year 2
Year 3
Year 4
High price (in $)
99.3
122.9
132.3
148.93
Low price (in $)
74.13
90.24
70.92
117.45
EPS (in $)
8.58
10.33
11.41
12.8
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