Predicting Stock Prices Using Future EPS Estimates And Historical PE Ratios: A Dual-Bound Approach

This paper introduces a practical stock valuation method that combines the 52-week average Price/Earnings (PE) ratio with future Earnings Per Share (EPS) estimates to predict stock price movements over a two-year horizon. Traditional valuation techniques, such as Discounted Cash Flow (DCF) and PE ratio analysis, often encounter challenges due to their complexity or oversimplification. By utilizing the 52-week average PE ratio and future EPS estimates, this approach aims to provide a balanced and realistic forecast, mitigating the extremes of market volatility. Through the analysis of two case studies—NSE: IEX and NSE: CMSINFO—the paper demonstrates the effectiveness of this method in assessing whether stocks at their all-time highs are overvalued and in predicting future price appreciation. The applications of this method extend to evaluating stock purchase timing, setting investment targets, risk assessment, market trend analysis, and portfolio management. Despite its advantages, the method's limitations include dependence on accurate EPS estimates, sensitivity to market sentiment, sector variability, and potential short-term volatility. Overall, the proposed method offers a valuable addition to traditional stock valuation techniques, providing investors with a practical tool for informed decision-making.