How to Determine Expected Market Value of Stock

By: Ryan Menezes

A high stock price reflects future company growth.

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A stock's market value changes continuously as investors trade shares. The actual value can be difficult to predict, because it is affected by unknown company developments, industry trends and broader economic changes. But the stock's expected market value is a figure you can determine mathematically. The expected market value is the value of all future dividends that the stock pays. If you can estimate the growth rate of the dividends, you can predict how much investors should willingly pay for the stock.

Step 1

Multiply this year's dividends by the dividends' growth rate to calculate the next year's dividend rise. For example, if a stock pays a dividend of $1.70 per share and is expected to pay 10 percent more each year, multiply $1.70 by 0.10 to get $0.17.

Step 2

Add the dividend rise to this year's dividend to calculate next year's dividend. Continuing the example, add $0.17 to $1.70 to get $1.87.

Step 3

Subtract the predicted growth rate from the hypothetical return rate that investors need. For example, if investors need a return rate of 15 percent from the stock, subtract 0.10 from 0.15 to get 0.05.

Step 4

Divide the size of next year's dividend by this difference. Continuing the example, divide $1.87 by 0.05 to get $37.40. This is the stock's expected market value.



About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

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