How to Set a Target Share Price for a Stock
A target share price is a projected price by the investor or trader. Ideally, the price is set at the point which provides the investor with maximum profit potential. You can also think of this as the exit or "unwind" price. The challenge is coming up with a methodology for setting a target share price. There are two primary ways: technical and fundamental analysis. Both provide clues about the future value of a stock. The most important thing to remember is that the target price is dependent on the trader and the methodology used.
Other People Are Reading
Instructions
-
-
1
Determine your level of risk tolerance. Your price target should coincide with the level of risk you are willing to take in order to achieve your price target. If you are risk adverse, you will want a target price close to the current share price. If you are risk friendly, you will seek out a target price further away from the current share price.
-
2
Chart the stock price over the past year. Try to identify trends; that is, patterns in share price movement. If you don't see any trends in the 1-year time frame, try 3 months or 2 years.
-
-
3
Look for areas of support and resistance. Areas of support are price "bottoms" and areas of resistance are price "tops." Stocks prices will usually trade within a range which is defined by current support and resistance levels. When the resistance level is broken, the old resistance level becomes a new support level and so on.
-
4
Compare P/E (price earning) ratios. P/E ratios are calculated by dividing the current share price by the current earnings per share. When compared against other companies in the same industry this will provide clues on the relative value of the stock. A high P/E ratio is indicative of an overpriced stock. A low P/E ratio is indicative of an undervalued stock.
-
5
Project the price. Try to narrow in on what you think the future price is going to be considering the variables mentioned in this article. Compare your projecting to analysts projections for validation and/or fun.
-
1
