Stock Price Calculator
Input Financial Metrics
Calculated Stock Price
Understanding Stock Price Calculation Formulas
The "price" of a stock isn't determined by a single, universally applied formula. Instead, it's a dynamic reflection of market forces, investor sentiment, company performance, and economic conditions. However, various valuation models exist that investors and analysts use to estimate a stock's intrinsic value, which can then inform their buying and selling decisions. This calculator demonstrates two common approaches: the Price-to-Earnings (P/E) ratio method and the Dividend Discount Model (DDM).
1. Price-to-Earnings (P/E) Ratio Method
The P/E ratio is one of the most widely used metrics for valuing a company's stock. It compares the company's current share price to its earnings per share (EPS). The formula is:
P/E Ratio = Market Price Per Share / Earnings Per Share (EPS)
This calculator uses a variation to estimate the Market Price Per Share if you know the expected P/E ratio and the EPS:
Estimated Stock Price = Earnings Per Share (EPS) × Price-to-Earnings (P/E) Ratio
A higher P/E ratio generally suggests that investors are willing to pay more for each dollar of earnings, often because they expect higher future earnings growth. Conversely, a lower P/E might indicate the stock is undervalued or that investors have lower growth expectations.
2. Dividend Discount Model (DDM)
The DDM is a method for valuing a stock based on the theory that its value is the sum of all its future dividend payments, discounted back to the present. A common version is the Gordon Growth Model, which assumes dividends grow at a constant rate indefinitely. The formula is:
Gordon Growth Model Formula:
Stock Price = D1 / (r - g)
Where:
D1= Expected Dividends Per Share next yearr= Required Rate of Return (investor's minimum expected return)g= Expected Constant Dividend Growth Rate
In this calculator, we calculate D1 based on the current dividends per share and the growth rate:
D1 = Dividends Per Share (current) × (1 + Expected Dividend Growth Rate)
This model is best suited for mature, stable companies that pay regular dividends and have a predictable growth rate. It's less effective for companies that don't pay dividends or whose growth is highly erratic.
How to Use This Calculator
Enter the relevant financial metrics for the stock you are analyzing. You can use either the P/E ratio method or the Dividend Discount Model inputs. The calculator will provide an estimated stock price based on the formula you provide data for.
- Earnings Per Share (EPS): The portion of a company's profit allocated to each outstanding share of common stock.
- Price-to-Earnings (P/E) Ratio: The ratio of a company's share price to the earnings per share for a company.
- Dividends Per Share (DPS): The total dividends paid out per share of stock over a specific period.
- Expected Dividend Growth Rate (g): The anticipated annual percentage increase in dividend payments. Express as a decimal (e.g., 5% is 0.05).
- Required Rate of Return (r): The minimum return an investor expects to receive from an investment. Express as a decimal (e.g., 10% is 0.10).
Note: These formulas provide estimates based on specific assumptions. Actual stock prices are influenced by a multitude of real-time factors and market dynamics. Always conduct thorough research and consider consulting with a financial advisor before making investment decisions.
Example Calculation (P/E Ratio Method)
Imagine a company, TechGrowth Inc., has an EPS of $4.50. Analysts expect its P/E ratio to be around 25.0 based on its growth prospects. Using the P/E method:
Estimated Stock Price = $4.50 (EPS) × 25.0 (P/E Ratio) = $112.50
Example Calculation (Dividend Discount Model)
Consider another company, StablePay Corp., which currently pays a dividend of $2.00 per share. Investors require a 12% rate of return (r = 0.12), and dividends are expected to grow at a steady 4% annually (g = 0.04).
First, calculate the expected dividend next year (D1):
D1 = $2.00 × (1 + 0.04) = $2.08
Then, apply the Gordon Growth Model:
Stock Price = $2.08 / (0.12 – 0.04) = $2.08 / 0.08 = $26.00