Target price

The price an analyst expects a share to reach, usually within twelve months. Typically forecast earnings times a chosen multiple, so it inherits the uncertainty of both.

Where you will meet it

Target price appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Set out what goes into a company research report, including one that initiates coverage
  CFA Level I · Equity Investments

  “A detailed company research report usually opens with a summary of the recommendation, target price and key reasons, followed by the investment thesis, a description of the business and its industry, financial analysis and forecasts, the valuation and how it was reached, and the main risks to the view, with disclosures of conflicts of interest.”

• Set out the steps by which a fundamental active equity strategy is built
  CFA Level III · Portfolio Management Pathway

  “Analysts study the industry and the firm's competitive position, forecast its financials and value the business with discounted cash flow or relative multiples to reach a target price.”

• Explain a covered call: why an investor writes one, how it is built, its payoff and value at expiry, its risks and profit, the most it can gain or lose, and the underlying price at which it breaks even
  CFA Level III · Derivatives and Risk Management

  “A covered call is a long asset plus a short call, used to earn income, sell at a target price or improve an exit.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with T · Glossary