I'm worried about my retirement, so I started investing in stocks DAY 52 [How to think about future P/E ratios]
― Walking with Haru, Investment Record at Age 60, Day 52 ―
The final piece has fallen into place.
I watched one video again today.
The theme was "How to think about future P/E ratios."
On Day 44, I learned the formula for calculating future stock prices.
Future stock price = Unannounced EPS × Unannounced P/E ratio
From Day 49 to 51, I learned how to think about unannounced EPS.
Today, I learned how to think about the other side: the unannounced P/E ratio.
With this, I have both numbers needed to calculate future stock prices.
📍 Current location on the roadmap
Look at the representative (Day 51) → Think about future P/E ratios (Today) → 4 timings when expected EPS changes
📚 What I learned today: 3 ways to think about future P/E ratios
① Use the current P/E ratio as a reference
This is the simplest method.
The P/E ratio is determined by factors such as "growth rate," "sustainability," and "certainty."
If these factors do not change, one can assume that the future P/E ratio will be at the same level as it is now.
If the current P/E ratio is 30x, I assume the P/E ratio one year from now will also be 30x.
However, there is a point to note.
If the growth rate is declining or there are concerns about performance, it is necessary to discount the P/E ratio accordingly.
At first, it is safer not to assume that the P/E ratio will rise.
Just think about whether the P/E ratio will be maintained.
That is enough. If earnings grow, the stock price will rise just by maintaining the P/E ratio.
⭐️ Key Point
First, base your thinking on the current P/E ratio.
If there are negative factors, discount accordingly.
Don't think about the P/E ratio rising; only think about whether it will be maintained.
② Refer to past P/E ratios
The expected P/E ratio trend graph from the stock scout tool I learned about on DAY 48 comes in handy here.
Check the average and maximum P/E ratios over the past few years to use as a guide for future P/E ratios.
Furthermore, by checking what happened during periods when the P/E ratio fluctuated significantly, you can see what investors expect from that company.
For example, suppose the P/E ratio was 60x during a period when the growth rate was 30-40%.
If the current growth rate has fallen to 20-30%, you can predict that the P/E ratio will likely settle around 30x.
By reading the relationship between growth rate and P/E ratio from the past, the accuracy of future predictions increases.
⭐️ Key Point
Check past P/E ratio trends using the stock scout tool.
By comparing changes in growth rate with changes in P/E ratio, it becomes easier to read future P/E ratios.
③ Refer to the P/E ratios of other stocks
There is also a method of comparing the P/E ratios of companies in the same industry with the same business model.
However, since this is for advanced users, ① and ② are sufficient for now.
⭐️ Key Point
Start by referring to the current P/E ratio.
Accuracy increases by also checking past P/E ratios.
④ Now you can calculate the future stock price
Let's organize what we have learned so far.
Future stock price = Unannounced EPS × Unannounced P/E ratio
Unannounced EPS → Consider based on Japan Company Handbook forecasts or medium-term management plans
Unannounced P/E ratio → Consider based on the current P/E ratio, using historical P/E ratios as a reference
I have both numbers now.
All that's left is to plug them into this formula.
If the future stock price is higher than the current stock price, I can judge that the stock is a good buy right now.
This is the core of fundamental analysis.
💬 Satsuki's questions and Haru's answers
🌸 Me: "Haru-san, how do you determine whether a P/E ratio will be maintained?"
🌱 "First, check if the company's performance is consistently trending upward. If there is no major change in the growth rate and the business model remains the same, you can assume the P/E ratio will be maintained. Conversely, if growth is slowing down or the industry environment is changing, the P/E ratio may decline." ― Haru
🌸 Me: "Does that mean I can calculate the future stock price myself?"
🌱 "That's right. You just need to think about the unannounced EPS and unannounced P/E ratio yourself and multiply them. The calculation itself is simple. What's important is how you think about those numbers. Everything we've learned so far leads to this." ― Haru
I can calculate the future stock price myself.
I started on DAY 38, and I've finally made it this far.
At first, I didn't even know how to read a stock price chart.
Now, I'm learning how to forecast future stock prices on my own.
I haven't actually done the calculation yet.
But I know how to do it.
Next, it's my turn to actually try it.
📝 Summary of the day
There are three ways to think about future P/E ratios.
First, start with the current P/E ratio and improve accuracy by referring to historical P/E ratios.
Future stock price = Unannounced EPS × Unannounced P/E ratio.
I have both numbers now.
All that's left is to actually calculate it.
I watched the video, took notes, and summarized it into an article.
A total of one hour.
One hour every day. That's all it takes.
I believe that consistency is my greatest talent.
Next time: "The 4 timings when expected EPS changes."
I will learn how to capture the moments when stock prices move more precisely.
I will continue tomorrow as well.
📌 Postscript
A reader asked, "What is unannounced EPS?"
It is the same as what is commonly called "expected EPS" in investment terminology.
I was just using the term from the lecture.
Unannounced EPS = Expected EPS (for the next fiscal year and beyond)
Unannounced P/E ratio = Future P/E ratio
Thank you for pointing that out 🌱
📣 "Friends Walking with Haru" is in preparation
A place where friends who have started investing just like me
can report their progress and support each other's consistency.
If you would like to join, please let me know in the comments 🌸
📚 Related articles for DAY 52 are here
#FundamentalAnalysis #PER #FutureStockPrice #InvestmentBeginner #InvestingInYour60s #RetirementAnxiety #StartedWithAI #ThreeLeggedRaceWithHaru
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