what is alibaba target price and how it can be achieved with the PE Ratio

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Expert Solution

TARGET PRICE CAN BE ESTIMATED BY THE PE EXPANSION METHOD. THIS TARGET PRICE CAN BE USED AS AN ESTIMATE ABOUT WHEN THE SELLING WILL INITIATE. INVESTMENT BANKING DIVISION'S RESEARCH SHOWED THAT P-E RATIOS OF STOCKS BREAKING OUT FROM EARLY STAGE BASES INCREASE BY APPROXIMATELY 130% (OR 2.3 TIMES ) .

PRICE TO EARNINGS (PE) RATIO IS BASICALLY MARKET VALUE BY EARNINGS PER SHARE.

PE RATIO = SHARE PRICE / EPS = MARKET VALUE PER SHARE / EARNINGS PER SHARE.

TARGET PRICE BY EXPANSION OF PE RATIO :

STEP 1 : ASCERTAIN PE RATIO OF STOCK AT BUY POINT

STEP 2 : MULTIPLY THIS PE RATIO BY 2.3 . THE PRODUCT IS THE EXPANDED PE RATIO.

STEP 3 : ASCERTAIN ANNUAL EPS ESTIMATE (USUALLY NEXT YEAR'S).

STEP 4 : ESTIMATED ANNUAL EPS IS MULTIPLIED BY EXPANDED PE RATIO TO GIVE PROJECTED TARGET PRICE.

FOR ALIBABA TARGET PRICE IS THE PRICE THE INVESTOR IS EXPECTING THAT THE STOCK WILL REACH IN A GIVEN AMOUNT OF TIME. IT IS THE FUTURE PRICE OF THE STOCK.

jeff jeffy answered 1 year ago

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