In this video, we'll learn how to use forecasted earnings to estimate the future stock price.
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Hi，
Thanks for videos.
Can I ask why FY 2017E EPS multiple by FY2016E P/E(current year forward) rather than FY2017E P/E when calculating future stock price? Many Thanks
Hi Yilin,
In the video, we’re using the FY2016 Current Year Forward P/E as a proxy for FY2017 Current Year Forward P/E. So we’re making the assumption that investors would be willing to pay the same multiple for each dollar of current year’s projected earnings in 2017 as they did in 2016. We didn’t learn how to diligence whether it’s the right multiple to use yet, so in this lesson, we used the previous year’s multiple as a proxy, which is a common practice.
I see. Thank you very much for your reply and it’s very helpful!