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This is a theoretical construct, but you can come up with a rough guess as to what the stock should be worth by taking the company's earnings per share and multiplying it by the industry multiple. Let's say you have some XYZ Tobacco stock. Tobacco stocks generally trade somewhere around seven times earnings, so if XYZ has a billion shares outstanding and earned $10 billion last year (EPS of $10), XYZ should trade at around $70 per share.

A stock trading significantly lower than the industry multiple would suggest was the cause of most of the leveraged buyouts of the last thirty years.

Once a stock starts trading, it is valued at whatever someone will pay for it.

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12y ago

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