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Have you ever wondered if it was possible to figure out what a stock will be worth in a couple of years? Would you like to have an idea of what kind of return you would have? There just happens to be an investing method that helps you achieve this.
For example, let's say that QRS stock is trading at 71 dollars per share with a P/E (Price to Earnings) of 23 and has an estimated earnings for 1999 of 3.08/share with an expected increase in earnings over the next year of 17%. The future value of the earnings after one year would be 3.60/share.
(3.08 x 1.17) = 3.60
For the sake of this example, let's say that the stock maintains its current P/E of 23 during the year. You would then multiply the P/E (23) by the future value of the earnings (3.60), thus giving you a future value of the stock which would be 82.88 dollars per share.
You can then divide this value by the current value and you would find out the estimated rate of return. By doing this, you would discover that QRS would return about 16.7% (82.88 divided by 71).
This method does not guarantee that QRS stock would give you a 16.7% return because the stock market is constantly changing. However, it does give you an idea of what to expect. This method can be used to help you decide if a stock is right for you.
This method predicts the earnings of a stock by multiplying the current year's expected earnings by the expected percent increase in earnings for the next year. This value is then multiplied by the future P/E ratio. This information for each stock can be found at www.quicken.com. I know it seems complicated, but it's really not.
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