There is no one mathematical technique or formula that can be used to accurately predict the price of a stock, states Forbes. However, investors use financial statements, price/earnings ratios and other pieces of information to estimate future stock prices.Continue Reading
Analysts use a metric known as price/earnings ratio to determine if a stock is worth buying, states Forbes. This metric takes into consideration the current price of a stock and divides it by the amount earned for every share outstanding. The price/earnings ratio of a particular stock is compared to the industry average to determine if the stock is overvalued or undervalued. The dividend yield is another metric that assists with the valuation of a stock. This metric is calculated by taking the current dividend per share and dividing it by the current price per share of the associated stock.
Analysts can also use a company's most recent financial statements to analyze stock price, states the Houston Chronicle. Public companies release the 10-Q each quarter, and this package contains information related to financial performance. Macroeconomic conditions, market perception and relevant news are additional tools used to determine stock price. Those interested in investing in an industry or niche, as opposed to an individual stock, should consider a mutual fund, says Forbes.Learn more about Investing