How do you forecast price using P/E Ratios
Tama ba ito, [Net Income/Total Outstanding Shares] = EPS, EPS * [Industry P/E Ratio]

Here's a general way of looking at it.

If you know or have an idea of the EPS(earning per share) then multiply this to a factor of say 15 which is the standard I used. Why 15? 15 is considered the historical standard PE ratio. This varies between industries as growth companies tend to have higher PEs than establish companies. Also this would differ during market situation be it a bear market or a bull market, with people tend to tolerate higher PEs during bull markets and prefers lower PEs during bear markets.

Example time!

Lets take the case of FEU. EPS ending mar 2010 was at 65 pesos. Since FEU is an establish business and earnings seem to be stable throughout the years then you can say that come 2011 its share price could be 65 x 15 or 975 pesos. Now when valuing growth stocks like mining stocks, then you can raise the PE to 17 to 20. This is the easy part, the hard part is determining the EPS to be used.
The World is a Vampire . . .
^Ayos, tama ang formula ko pala. hehe So yung accuracy ng EPS ang crucial. Thanks dude.

I would like to study FA din kasi. Di maintindihan ng clients ko sa work ang TA... earnings potential lang concern nila.
As Rhasta would always say "No problem Maaan!"
The World is a Vampire . . .

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