The “Future Return by P/E Ratio” tab helps users estimate how much a stock’s price might rise or fall over time based on their assumptions about future revenue growth, profit margins, and valuation (specifically the Price-to-Earnings (P/E) ratio). This model is useful for evaluating whether a stock is likely to generate a gain or loss over your investment horizon under realistic or optimistic assumptions.

How to Use the “Assumptions” Section

To calculate projected returns using the Future Return by P/E Ratio model, begin by entering your assumptions into the input fields:

  • Projected Future P/E Ratio – Estimate what the company’s price-to-earnings ratio will be at the end of your investment period.
  • Years Later – Enter how many years you plan to hold the stock.
  • Annual Revenue Growth (%) – Input your estimate of how fast the company’s revenues will grow each year.
  • Future Profit Margin (%) – Provide your assumption for the company’s net profit margin at the end of the time period.

Once all four assumptions are entered, click “Calculate” to run the model. The tool will project the company’s future revenue, earnings, market cap, and stock price—and determine whether your assumptions result in a gain or loss over the selected time frame.

The output table on the Future Return by P/E Ratio tab presents the results of your projection from top to bottom, showing how each assumption impacts the company’s future financials and your expected return.

Each row compares the company’s current value with the future value based on the assumptions you entered, with a short explanation provided alongside. Here’s how to read the table:

  • Revenue – Shows current revenue and the projected revenue based on your assumed growth rate.
  • Profit Margin – Displays the current margin and your future margin assumption.
  • Net Income – Calculates future net income by applying the projected margin to the projected revenue.
  • P/E Ratio – Compares the current P/E to your assumed future P/E.
  • Market Cap – Computes the future market cap using the future P/E and net income.
  • Shares Outstanding – Assumes the number of shares remains unchanged unless you project dilution or buybacks.
  • Price – Calculates the projected share price using the future market cap divided by shares outstanding.
  • Gain (Loss) – Shows your total expected return over the time period, comparing the current price to the projected price.

This top-to-bottom format helps users clearly understand how each input flows into the next, ultimately showing whether their assumptions would lead to a gain or loss.