Chicago, IL – March 28, 2012 - Stocks in this week's article include Commercial Vehicle Group, Inc. (NASDAQ: (CVGI - Free Report) , Dana Holding Corporation (NYSE: (DAN - Free Report) , Acuity Brands, Inc. (NYSE: (AYI - Free Report) , The Blackstone Group L.P. (NYSE: (BX - Free Report) and Hub Group, Inc. (NASDAQ: (HUBG - Free Report) . Kevin Matras shows how to calculate a stock's price target and how to find stocks currently trading below them.
Screen of the Week written by Kevin Matras of Zacks Investment Research:
Regardless of what you think may or may not happen to the market, everyone would like to have a better understanding of what their stock's potential price target is. And that's what we're going to talk about today.
You can do this by using either technicals or fundamentals. Today, I'm going to focus on the fundamentals. And we're going to use the P/E ratio to calculate it.
Many people use P/E ratios to determine a company's perceived under or overvaluation. But you can also use the P/E ratio to determine a stock's upside and downside price targets. The two most common P/E ratios used are the (1) P/Es using the Trailing 12 months (or 4 quarters) of earnings and (2) P/Es using the F1 (or Current Fiscal Year) Estimates.
The calculation for the P/E ratio is simply price divided by earnings. For example: if a stock's price is $30 and its earnings are $1.25, its P/E would be 24. If that stock's earnings rose to $2.00, the P/E would now be lower at 15. ($30 price / $2.00 earnings = 15 P/E) And the most logical conclusion would be to see the stock's price rise until its most recent multiple (or P/E ratio) of 24 was hit again.
Why is this so 'logical'? Because if people had just been willing to pay 24 times earnings, they probably will again if they believe the company's earnings will continue to improve. And in an environment where P/Es are increasing, they might be willing to pay even more.
You'll also find that most of the time a stock's P/E ratio using EPS actuals is higher than its P/E ratio using its forward estimates. That's because of the uncertainty regarding the projected earnings vs. the certainty of actual earnings. As the company continues to report (and meet its projections), the forward P/E ratio typically increases, which means the stock price increases as the earnings projections are coming to fruition.
And as more optimism grows over future earnings growth, you may see the P/E ratio grow even more, getting even higher than its previous multiple. So, the calculation to figure out your stock's price target is...
For the rest of this Screen of the Week article, please visit Zacks.com at: https://www.zacks.com/commentary/20502/
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don't wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=5529
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=5530
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros https://at.zacks.com/?id=5531
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Contact: Jim Giaquinto