In Sight

And finance Allah shmoop What is a target price Oh

with Wall Street stock brokers Cell site analyst Mumbles Well

if the company produces a dollar twenty and earnings this

year up from a dollar next year and twenty percent

growth is sustainable for the foreseeable future than the stock

should trade it well give or take twenty times earnings

And so forward earnings of a dollar twenty is twenty

four dollars Price Target up six bucks from eighteen here

So yeah twenty for is my target price So that's

a target price It given stock's trading at whatever price

There's some imaginary Bowman like that boring guy from the

Marvel movies aiming his arrow from here to here where

the you know Apple sits on the other guy's hit

Why do target prices even exist Well in the seventies

and eighties Street analyst basically only gave three recommendations by

cell and old but there needed to be more granularity

like Well sure Disney was a great company and it

always seemed to be ABI but at any price or

just up to some number So Analyst basically gave their

stockbrokers and additional thing to talk to their clients about

I'ii want to stock did hit a given price target

The analyst would then raise it I raise the target

for whatever reason or would change their rating from say

by toe hold So how does that work Well the

Wall Street analyst presents to the world her view of

the value of the given company usually something presented in

the form and flavor of earnings or earnings Multiple Why

earnings Because every investor on Wall Street whether they grew

up covering newspaper print or semi conductors speaks the language

of earnings like Gap earnings official earnings that is earning

supplied Any industry is a rational driver of stock price

multiples And yes sometimes the rationale behind target prices comes

from weird evaluation metrics like revenue multiples And usually there's

a lot of mumbling that gets done behind the scenes

there Like uh well the flying car industry is brand

new with nobody having any profits or earnings and spending

all their money to buy growth So the industry trades

at an average of six times revenues and we think

yes fly No crash should trade at a one times

revenue multiple premium to the market because of you know

its emphasis on safety and not crashing So with one

hundred million of revenues projected this year it should trade

it seven times that number for evaluation of seven hundred

million dollars But today it's market capitalization is only five

hundred fifty million so there's some twenty five ish percent

upside from here if it hits our target price but

let's hope that's the only target the flying cars hit