How do you establish a target price on a stock? by Stevenmac2

[aquaswim47]

02-23-07, 09:34 AM
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How do you establish a target price on a stock?
Hi,

Can someone share your techniques with examples (show screenshot if using chart) on how I can establish a target price for a stock? How do you know what is the potential price of that stock? What methods do you use to determine this?

Thanks,
Steven

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#2 (permalink)
02-23-07, 10:00 AM
aquaswim47 vbmenu_register("postmenu_9763", true);
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Well, think about it
There's no specific formula to deciding whether a stock has hit a target price. That said, you can ask yourself whether a stock's price is reasonable based on whether its market capitilzation is justified by its balance sheet and its level of growth. If you see cash flow from OA growing that is a great sign that the business is taking in cash from customers and able to invest in PPE or R&D. I really like seeing strong companies. I tend to love stocks with a PE ratio of between 8 and 16 or that have a PE that is less than 1.75x its growth rate.

In terms of technical analysis, I look at a stock's volatility history and try to buy at a satisfying price; a price that is near the bottom. If I'm shorting a stock against another stock or shorting an index, I'm less concerned about price than if I hold a long position in the stock.

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#3 (permalink)
02-23-07, 02:32 PM
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If you want to learn about several valuation methods and how to use them in equity analysis, check out Fire Your Stock Analyst.Another decent book, although I like its valuation methods less, is Applied equity analysis.
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[investoid]

Aquaswim - did i miss something? What material are you referring to? Is it in this thread?

[llamagatekeeper]

I saw the post he was referring to. We get quite a few spammers here. I believe it has been removed, but I also believe we need to have more preventive measures for signing up so spammers can't come in here and post junk like that as well.

[aquaswim47]

Yes, there was a post that was inappropriate for this message board. I am glad that the moderators had taken care of the pornographic material. This is a children-friendly website (or at least it's supposed to be). I'm glad they were relatively quick at deleting such material.

I had copied the information over to this thread such that people could continue replying and wouldn't have to see any inappropriate content. I think discussing a target price on a stock is a great investment topic; even though I believe firmly in the tenants of modern portfolio theory, a small percentage of your portfolio that's discretionary should be invested in stocks that give you the best risk/reward trade-off possible. For some people, it would be very little risk and a pretty good return while others it would be a high return accompanied by high risk.