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: |
Year 1 | Year 2 | Year 3 | Year 4 | |||||||||||||
High price | $48.60 | $57.34 | $69.46 | $74.85 | ||||||||||||
Low price | 37.25 | 42.18 | 55.85 | 63.18 | ||||||||||||
EPS | 2.02 | 2.31 | 2.45 | 3.05 | ||||||||||||
Earnings are expected to grow at 9 percent for the next year. |
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