Question

New York Times Co. (NYT) recently earned a profit of $1.61 per share and has a P/E ratio of 19.40. The dividend has been growing at a 9.25 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 26 in five years?

Stock Price: ???

Stock Price with new P/E : 65.15

Answer 1

Calculation of stock price with current P/E ratio:
Current price= Earning per share*P/E ratio
= 1.61*19.40=31.234
Stock price in five years= current price*(1+growth)^5
=31.234*(1+0.0925)^5= $48.61
Stock price in five years with current P/E is $48.61
Calculation of stock price with new P/E ratio:
Current price= Earning per share*P/E ratio
= 1.61*26=41.86
Stock price in five years= current price*(1+growth)^5
=41.86*(1+0.0925)^5= $65.15
Stock price in five years with current P/E is $65.15