# How to calculate target price using fundamental results?

Using Quarterly or Annual results, how to calculate the target price, i.e future valuation of stock?

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There are multiple methods to arrive at future stock price calculation.

Method 1 -

1. identify the growth rate of Earnings Per Share.
2. estimate the future EPS. Say after 5 years
3. Estimate the average PE of last 5/10 years
4. Calculate the stock price after 5 years as - FUTURE EPS * ESTIMATED PE
5. Calculate the present value of the stock (use discount percentage to calculate the Present Value)
6. Reduce the price further by some margin of safety

All the above steps are estimates and common sense is very much needed. Be conservative rather than optimist.

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2nd Method - This is complex method. None of the method is fool proof. Sometimes method 1 is more faster and accurate.

1. Identify the free cash flow generated by the company
2. Predict the free cash flow for next years
3. Select the discounting factor
4. Compute the present values of all the future cash flows
5. Compute the terminal value (value of enterprise which generates x cash flow)
6. Sum all the present values - that’s enterprise value
7. Divide enterprise value by the number of shares outstanding - gives the estimated value of share price.
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