Estimate Stock Price -How To Estimate The Price Of Shares of Company

How To Estimate The Price Of Shares

   Estimating the value of share depends upon the availability of some related information. There are a certain techniques adopted for estimating the price of the shares that is traded. But each of this techniques depends upon some other important elements and these elements are:

  • Earnings of the company
  • Growth rate of the company
  • Return on invested capital
  • Return on assets employed
  • Total sales
  • Market capitalisation
  • Total value of the company


Calcualtion of Estimated Stok Price

If we have the clear information regarding one or more of these elements, then we could calculate the estimated price of a stock or share that is traded in the stock exchanges. Some of these techniques are easy and some are a bit difficult and will demand wide knowledge and analysis in the area.

Everyone who deals in the stock market or having any interest in the stock market at all, will be looking forward to the future rate of stock and estimate the stock price and do their buying, holding or selling depending upon this estimation along with other constraints. Their trading results will be positive if their estimation is accurate or close to what is accurate. So it is always better to understand how to estimate the price of shares depending upon a few constraints. Here are a few of such techniques which will enable you to estimate the price of the shares of different companies.

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Methods to Evaluate Stock Price

  1. Discounted cash flow method : It involves the discounting of the profits which could be dividends, earning or cash inflows on account of shares with the appropriate discount rate, and it will show the total discounted cash flows and ultimately the value on disposal. When we consider the discounting rate, it should be inclusive of the risk premium. This risk premium will be normally based on a capital asset pricing model. This model is not very easy and requires thorough knowledge in the subject.
  2. Price earning ratio method : This method depends upon the earnings per share and the price to earning. Earnings per share is the base of this method and is arrived by dividing the total earnings of a period eligible for consideration with the total number of shares outstanding or sometimes with the equivalent number of shares outstanding. This total earnings must exclude the one time earnings and the non cash earnings. And if the P/E ratio is said to be a specific number of times multiply the same number with the EPS (Earnings per share) and you will get the share price.
  3. Growth rate based valuation : Valuation of shares highly depends upon the growth rate of the company. This is suitable for beginners as the growth rate of sales or income will give an overall idea about to where the company is heading at least for the near future. However as the companies and the market may be going through drastic changes and one cannot completely rely on the historic growth for making an estimation and decision. While doing this estimation, you should consider the historic growth of past 5 years for the very least and same time consider all the other relevant related factors.

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dallas93444 profile image

dallas93444 5 years ago from Bakersfield, CA

Good information. Thanks for sharing. Flag up!

Neeti 5 years ago

it is very useful to me for complete my my project.

thank you

kris 3 years ago

how do u estimate the price of the stock or the value of the firm if there are no dividends??

Kevin Peter profile image

Kevin Peter 3 years ago from Global Citizen Author

Hi dallas,

Thanks for leaving the supportive comment.

Hi Neeti and kris,

Thanks for finding the hub useful.

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