![]() ![]() So, in multiplying the target price by 0.9, Facebook’s 2020 target price is $241.84. ![]() A market correction is defined as a period when a major index, such as the S&P 500, drop by 10% or more. What does that do? It considers a market correction. If you would like you to be more conservative with the target prices, you can multiply them by 0.9. That is not too bad of a target price for 2020. Facebook was $205.25 at the end of 2019 and was $264.45 as of the market close on October 9th, 2020. For example, Facebook’s target price for 2020 is: Price / $8.17 = 32.89 where Price is equal to $268.71. The formula to calculate the target price is: ( Price / Estimated EPS) = Trailing PE where Price is the variable we are solving for. Here, look for the trailing PE as of December 31st, 2019. On Yahoo Finance, navigate to Facebook’s Statistics page. The formula is EPS * (1+Average EPS Growth Rate) where EPS is the previous year’s EPS. Let us now solve the estimated EPS for 2020, 2021, and 2022 assuming it grows at 25.7% each year. Now that we have our EPS growth rates, we can find the average, which is 0.257 or 25.7%. To get the year over year EPS growth rate, we will do the following formula: ( EPS2 - EPS1) / EPS1. Since the values are in thousands, multiply each by 1,000 to get them in dollars per share. Scroll down to finds its Basic EPS from 2016 to 2019. 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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