How to Calculate Share Price? Best formula with example 2021
In essence, the share market, like any other market, is powered by supply and demand. When a share is sold, the buyer and seller trade funds for ownership of the shares.
The new market price is determined by the price at which the stock was bought. People, on the other hand, are frequently puzzled as to how to calculate share price. Let’s look at an example in this article.
How to Calculate Share Price?
To calculate a stock’s market cap, you must first calculate the stock’s market price. Take the most recent updated value of the firm stock and multiply it by the number of outstanding shares to determine the value of the stocks for traders.
The price to earnings ratio is another way to figure out how much a stock is worth. The P/E ratio is calculated by dividing the stock price by the latest 12 months’ earnings.
P/E ratio X Earnings per Share Equals Stock’s intrinsic value
Growing businesses have a greater P/E ratio, but established businesses have a lower rate of P/E growth.
How to Calculate share value Example
Business analysts use a variety of techniques to determine a company’s intrinsic worth. We’ll use Heromoto Corp ‘s financial data as well as the most common stock price formulas. The Heromoto Corp’s financial data is listed below:
- Current Stock Price: INR 2,465
- Last 12-months earnings per share: 148.39
- Annual Sales: 30800.62
- Annual Dividends per share: 105
- Historical P/E ratio: 18.53
- Book Value per Share: 1840.79
Let’s suppose Heromoto’s P/E ratio has been 18.53 in the past 2465 divided by 148.39 = 16.6 times the current P/E ratio. The present stock price should be 18 times its historical P/E ratio if it were trading at its historical P/E ratio of 18. 2754 is equal to 148.39.
On this criteria, Heromoto’s present stock price is undervalued. This undervaluation may attract the interest of potential acquirers, and analysts may advise their customers to buy the shares.
This calculation estimates that the Heromoto’ earnings per share will remain unchanged in the coming year. If earnings are predicted to rise, the estimated share price will rise even more.
When Benjamin Graham Formula formula is used to Heromoto, the Graham number is as follows:
Graham Number = Square root of (18.53 x 1.5(148.39) x 1840.79) = 2755 = Maximum intrinsic value
Based on this, Heromoto’s current share price of 2465 is undervalued when compared to its Graham number of 2755.
When Dividend Discount formula is applied to heromoto, the dividend growth rate is anticipated to be 7%, and the shareholders rate of return is estimated to be 11%:
Stock Value = 105/(0.11–0.07) = 2625
On this premise, a share of Heromoto trading at 2465 is undervalued in comparison to its intrinsic value as determined by the dividend discount calculation.
These are the major formulas to calculate stock price. Now you completely understand how to calculate stock price.
Originally published at https://profitmust.com on December 6, 2021.
