How to calculate target prices for your stocks

What’s a stock really worth? In an effort to answer this question, City analysts will generally produce target prices for the shares they cover.
These prices are calculated using a range of techniques. Broadly speaking, we can see them as the analysts’ best estimate of a fair value for the company, made without relying solely on market price discovery or valuation multiples.
Stockopedia subscribers can find the latest consensus target prices for each stock at the bottom of the StockReport, alongside detailed earnings estimates.
Here’s an example for FTSE 100 stalwart Lloyds Banking Group, showing the gap between the target price and current price. An estimated long-term growth rate for the business is also included, to give some context to the basis for the price target.

As with earnings forecasts, these target prices can be subject to regular revision. Although I don’t use them to make trading decisions, I find they can provide useful extra information and context when I’m analysing a company.
For example, when a stock I’m interested in is trading above its target price, possible explanations include:
The shares are starting to look (too) expensive;The...