How does Yahoo Finance determine the 1-year Target Price?
Answer:
Yahoo does not do it, it is an average of the analysts who cover the company, predictions. Their predictions are based on what the company estimates, how the particular industry is performing, any insider information they receive, and maybe how the company performed in the past.
it is an expected return of a security it is a basic financial equation.
Yahoo Finance does not. The target price is what the overpaid and under accurate analysts predict. They sort of pull it out of their rear end. Analysts are an optomistic lot and their target prices are always optomistic. Of course their job is to peddle securities and that is one of the tools in their bag of tricks. After all who would want to buy a stock that has a lower target than the current price.
Some anaylsts claim to use a formula and they may do so. They take the industry average PE ratio, discount the forward cash flow and then project what they think the stock should be worth base on that. Of course the forward cash flow is certainly an uncertain quantity.
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