If you look at stock prices over any year, you will find a high and low stock pr

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 over the past four years:

What is your high target stock price over the next year?

What is your low target stock price over the next year?

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 over the past four years:

Explanation / Answer

Expected Next Year Earnings = 13 x 1.07 = $13.91

Stock Price = PE ratio x Earnings

1. High PE ratio = 149.13/13 = 11.47

High Target Stock Price = 11.47 x 13.91 = $159.57

2. Low PE ratio = 117.65/13 = $9.05

Low Target Stock Price = 9.05 x 13.91 = $125.89

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