yekeyeke wrote:@mwanahisa
So what would be your estimated share price as of March 2011?
I think that this very much depends on how bullish the market will be at the time. This is both in overall terms as well as with regard to the specific outlook for the company.
As of today, EB is trading at a
historical PE ratio of 23.18.However, if we go back over the years at the beginning of March EB has traded at a historical PE of
25.5 (1st March 2007),
22.8 (3rd March 2008),
9.8 (2nd March 2009) and
13.7 (1st March 2010). The (simple)arithmetic
mean of
these PE ratios is
17.95.
My own view is that with expectations of continued growth of at least 20% in profitability for 2011, then a
historical PE ratio of between
17 - 20 should be reasonable.
Assuming my projection of an
EPS of 1.85 holds, then share price should be in the range of
31.45 to 37. I am
more inclined to the
35-37 level myself. If we are lucky it could go higher, but the market needs to be extremely optimistic for that.
We can of course use other methods to estimate our target price such as DCF. Indeed some will argue that PE is rather too simplistic but let it suffice for now. Also please note that this is at best a
theoretical postulation on my part which is based on various assumptions. Ultimately, the
market will
determine the price.