STOCK VALUE
STOCK VALUE
Is a company's revised EPS multiplied by current P/E a good indicator of FUTURE STOCK value?
If a company increased their EPS forecast for this year, would multiplying the revised EPS by the current P/E be a good indicator of approximate future value of a stock?
If P/E = Price/EPS then couldn't Price = EPS*P/E ?
That is a good indicator, but you need to pay attention to other things too.
It could be that the current P/E is too high or too low. It also could be that the P/E is correct, but the company has much debt, which means its P/E should be much lower. Or it could be that the stock price to book value is too high, which means it makes it very risky to take the P/E as a measurement of future stock price.
To calculate good P/E for this company, you should look at some of their competitors and calculate the average enterprise to operating profit ratio = (market cap + debt - cash)/operating profit. Once you have this ratio, you can use this ratio for your company and calculate the market cap from its operating profits, debt and cash. This market cap would be a good indicator for the future stock price. Then you can calculate the P/E ratio from this market cap to see if it matches with the current P/E ratio.
See link below to educate yourself and try calculating it. Success!
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