LONDON -- When weighing up a potential investment, it's useful to look forward rather than backward. If you buy a stake in a business, it's the future profits that count -- and the stock market will value your shares based on future expectations.
With that in mind, it can be helpful to review what expert City analysts are expecting a company to earn in the coming years. These expectations can be compared to the share price to give you a better idea of how the stock market is valuing the business.
Analysts expect Barclays to earn 36 pence per share this year. This means that compared to today's share price of 323 pence, the market is valuing Barclays' shares on a forward price-to-earnings multiple of 9.
The experts are far from agreed on this year's profit forecast, however, with estimates ranging widely between 28 pence and 43 pence per share.
Looking ahead, the consensus then calls for an improvement in Barclays' earnings to 44 pence per share for 2015, and then 50 pence in 2016. The data indicates Barclays' revenues meanwhile could jump from 24 billion pounds this year to 31 billion pounds in 2015, although once again, the estimates range significantly.
The wide-ranging estimates, and Barclays' seemingly depressed valuation compared to earnings prospects, demonstrate the market's fear of uncertainty. The fallout from the financial crisis continues to create a hugely speculative element in the analysis of modern banks' earning power and intrinsic value.
But is the market right to shun the complex balance sheets of the financial sector, or can we bank on Barclays' profits in the future?
Whether these projections and the current valuation make the shares of Barclays "fairly priced" is for you to decide.
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Mark does not own any shares in this article. The Motley Fool has a disclosure policy.
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