Question

New York Times Co. (NYT) recently earned a profit of $2.81 per share and has a P/E ratio of 20.00. The dividend has been growing at an 8.25 percent rate over the past six years. If this growth rate continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 23 in five years?

Answer 1

Calculation of stock price with current P/E ratio:
Current price= Earning per share*P/E ratio
= 2.81*20=56.2
Stock price in five years= current price*(1+growth)^5
=56.2*(1+0.0825)^5= $83.54
Stock price in five years with current P/E is $83.54
Calculation of stock price with new P/E ratio:
Current price= Earning per share*P/E ratio
= 2.81*23=64.63
Stock price in five years= current price*(1+growth)^5
=64.63*(1+0.0825)^5= $96.07
Stock price in five years with current P/E is $96.07