How to Calculate a Company's Stock Price

by Francesca Lee

When a company's stock price flashes gains and losses on your television screen, it tells one side of the story -- the public ticker face. A new investor can be swayed by what looks on the surface like a "cheap" or "expensive" price. But an old-hand first unpacks the numbers -- growth rate, sales, earnings -- to discover if a company is undervalued (a bargain) or overvalued (a pricey risk). Pros ask a set of critical questions and use a basket of equations whenever they analyze a company, and so should you.

1. Check the company's most recent quarterly report (10-Q) and look up their earnings per share (EPS). You'll find two figures: The number of shares of stock the company issued and the earnings. To calculate the EPS by hand, divide the earnings by the number of shares. You'll quickly realize that you can't compare Company A to Company B based on price alone, even if they're trading at similar prices. The number of shares matters when you calculate earnings.

2. Divide the the company's price-per-share by its EPS to get the price-to-earnings ratio, also called the P/E ratio. This number can stump new investors. But it's part of an investing vocabulary and helps you come to terms with the difference between price and value. The P/E defines how much each dollar of earnings costs the investor. You pay almost twice as much for a dollar of earnings for a company with a P/E of 85 than for a company with a P/E of 45.

3. Factor in the sales and you have another measure of value. Divide the share price by the total sales and you have the price-to-sales ratio. Keep this in mind when a company catches your investment eye. Once considered an old-fashioned and dated metric, the P/S ratio has been dusted off and used to cut through the fluff of earnings statements. It's risky and difficult for companies to fudge sales (revenue) numbers. Historically, companies with low P/S ratios beat companies with low P/Es.

4. Include the company's growth rate and calculate the PEG rate. Take the P/E and divide it by the current growth rate. For example, FatWallet Company has a P/E of 67 and a growth rate of 25 percent. Its PEG is 67/25 = 2.68. According to MSN Money, stocks with PEGs higher than 1.0 are trading above their growth rate; those with PEGs around 1.0 match their projections.

Things Needed

  • Calculator
  • Current financial statements


  • Another way to figure the price-to-sales ratio: Find the market value (share price multiplied by outstanding shares) and divide it by the total amount of sales for the previous fiscal year.


  • Watch for company's that project revenues far into the future and don't have concrete earnings. They're harder to evaluate.

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