Expected return calculator
Enter the price, the earnings and your growth estimate. The calculator shows what annual return you can expect and how much you could pay for the return you want.
Result
Advanced calculator Three scenarios, any period, the growth the price assumes and where the return comes from
When opened, it takes the numbers from the basic calculator. The bear and bull scenarios are suggestions based on your estimate (growth half lower or higher, P/E 20% lower or higher); change them as you see fit.
| Scenario | Price in 5 years | Annual return | Highest price for 10% |
|---|
Price in three scenarios
The band shows the range between the bear and the bull scenario. The path between today and the end of the period is an illustration with a steady annual return; the calculator only computes the price at the start and at the end.
How the calculator works and what it leaves out
- Earnings in N years = today’s earnings × (1 + growth)N
- Price in N years = earnings in N years × P/E at the end of the period
- Annual return = (price in N years ÷ today’s price)1/N − 1
- Highest price for the target return = price in N years ÷ (1 + target return)N
The return has two sources: earnings growth and the change in the P/E. If the P/E at the end is higher than today’s, part of the return comes from the market paying more for the same earnings. Relying on that is riskier than relying on growth.
What it leaves out:
- Dividends. The return is the change in price only.
- That growth costs money. A company has to invest to grow. High growth at a low return on invested capital is worth less than the calculation shows.
- One-off effects. If the earnings of the last 12 months were exceptional (a one-off gain, a write-off, a tax item), the starting point is wrong.
An educational tool. The result is only as good as your assumptions and is not financial advice.