Maximum Stock Price
Calculates the maximum price per share to pay today by projecting current EPS forward at the growth rate, applying the exit P/E, and discounting back at the required return — with an optional margin of safety discount.
When to use: Use when you want a per-share price target. Leave MOS blank for the unadjusted maximum, or enter a decimal (e.g. 0.25) to build in a valuation cushion.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| P0 | Maximum Stock Price | Most you should pay per share today | $ |
| E0 | Current EPS | Trailing earnings per share today | $ |
| g | Earnings Growth Rate | Expected annual EPS growth as a decimal | % |
| n | Holding Period | Years held before exit | years |
| ExitPE | Exit P/E Ratio | Expected price-to-earnings multiple at exit | integer |
| r | Required Return | Annual required rate of return as a decimal | % |
| MOS | Margin of Safety | Discount applied for valuation cushion as a decimal | % |
Real-Life Examples
Example 1: Software Compounder (no MOS)
A SaaS business earns $5.00 EPS today, growing 15% annually for 7 years, expected to trade at 25× P/E at exit. You require 12% returns and apply no margin of safety.
Given
Step-by-Step
Pay no more than $150.41 per share today to earn 12% over 7 years under these assumptions.
Example 2: Mature Industrial with 25% MOS
A mature industrial earns $8.00 EPS, grows 5%, exits at 15× in 5 years. You require 10% and demand a 25% margin of safety.
Given
Step-by-Step
The 25% MOS pulls the buy price from $95.10 down to $71.32 — a cushion against optimistic inputs.
Frequently Asked Questions
The entry P/E formula gives you a multiple to compare against current market P/E. This formula expresses the same idea as a per-share dollar price by anchoring on current EPS, projecting it forward at the growth rate, and discounting the exit value back to today.
Most analysts use trailing twelve-month (TTM) EPS for E_0, but normalized or forward EPS is also common — especially for cyclicals where TTM may understate or overstate true earning power.
No — leave MOS blank (or set it to 0) for the unadjusted maximum price. Enter a decimal between 0 and 1 to discount that price by the chosen percentage.