The Process

Because it relies on historical performance, the target price approach is most effective analyzing companies that have been in business long enough to amass a significant track record, say seven or eight years minimum.

Developing target prices involves seven steps. Don't be put off by that. You can do the whole calculation in less than 10 minutes.

Forecast sales in the target year.
Estimate profit margin in the target year.
Compute the target year net income by multiplying your sales forecast (Step 1) by your estimated profit margin (Step 2).
Estimate the number of shares outstanding at the end of the target year.
Estimate the target year EPS by dividing your net income forecast (Step 3) by your estimated number of shares ...

Get Fire Your Stock Analyst! Analyzing Stocks on Your Own now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.