Financial Modeling
5.1. Create a P/E table and a Price/Sales table if your company has no earnings. The only difference for the price sales table is that you now estimate a pessimistic, expected, and optimistic price/sales ratio along with revenue estimates. To obtain Revenue estimates, EPS, P/E and P/S use Thomson Reuters or Bloomberg applications. After typing in your ticker, on the left hand side, click Estimates and then Detail Estimates. There should be an average, low, and high estimate. Use the next year figures as we are trying to calculate what your stock will be worth next year.
5.2. After calculating your stock estimates, also calculate return estimates by simply taking next year’s expected price and dividing it by the current stock price minus one to determine your expected return. Do this. Below is an example for the P/E:
If the current stock price is $25, your P/E table would look like this:
Table X[1]: Table X shows the stock price estimates for XXX (your stock) next year using PE ratios. Both pessimistic and optimistic PE ratios are given along with the expected PE ratio. These ratios are combined with low, average, and high EPS estimates. The expected stock price and return is $28 and 12% respectively. Estimates range from $18, (-28%) to $48, (92%).
| PE / EPS
Current: Price = $25, PE = 14.5, EPS = $1.72 |
Low est. = $1.50 | Average = $2 | High est. = $3 |
| Pessimistic = 12 | $18, -28% | $24, -4% | $36, 36% |
| Expected = 14 | $21, -16% | $28, 12% | $42, 68% |
| Optimistic = 16 | $24, -4% | $32, 28% | $48, 92% |
