LONDON -- When weighing up a potential investment, we need 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.
Today, I'm looking at the earnings per share forecasts for Unilever (ULVR 0.86%) (UL 0.34%), the FTSE 100 consumer goods giant. All my figures are courtesy of S&P Capital IQ.
Analysts expect Unilever's profits to be 1.43 pounds per share this year. This means that compared to today's share price of 2,768 pence, the market is valuing Unilever's shares on a forward price-to-earnings multiple of 19.
Looking ahead, the consensus then calls for a rapid improvement in Unilever's earnings to 1.56 pounds per share for 2014 before jumping to 1.72 pounds in 2015, 10% annual growth. The data indicates Unilever's revenues, meanwhile, might grow by as much as 6% a year over the same time period, from 43 billion pounds to more than 51 billion pounds.
These lofty expectations and the company's steady, reliable business explain why the market is happy to attach a high premium to Unilever's shares. But is it worth paying extra to own part of a business of Unilever's caliber or have the shares become too expensive?
Whether these projections and the current valuation make the shares of Unilever "fairly priced" is for you to decide. But if you already own shares in Unilever and are looking for similar high-quality investment opportunities, I've helped pinpoint five particularly attractive possibilities in this exclusive wealth report.
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