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  • 9.1 Introduction
  • 9.2 Key Concepts
  • 9.3 Normal Earnings
  • 9.4 AEG
  • 9.5 Cost of Capital
  • 9.6 Implied Equivalence: IBM
  • 9.7 Residual Income
  • 9.8 Entering Data via Excel
  • 9.9 Forecasting Price
  • 9.10 Sensitivity Analysis
  • 9.11 Conclusions
  • 9.12 Questions

9.9  Forecast Price Implications for Investors

In the analysis provided in this chapter the above assessment of IBM’s stock price is significantly higher than current market price (234.74 versus 127.87).  So the question arises: based upon this analysis what is the future stock price of IBM?

The answer to this question lies in the Implied Expected Return number provided in Valuation Tutor’s calculator.  This is the return predicted from investor in IBM’s stock at the current spot market price.  In the above screen this is 0.1144 and this allows you to forecast where you expect IBM to be trading in 1-year or later time.

Projected Stock Price for IBM in 12-months: 

$127.87*1.1144 = $142.50

Important Disclaimer:  The above projections are computed from the assessed expected returns resulting from a textbook analysis of IBM’s intrinsic value.  That is, the purpose of this exercise is designed for classroom teaching/learning purposes.  Actual realized returns can vary substantially from what is expected!

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