Now, you will calculate the High Price that the stock is forecasted to reach in the next five years. The price is calculated by multiplying the Average High Price/Earnings Ratio (from Section 3, Row 7, Column D) by the Estimated High Earnings Per Share.
A common question from beginners is, "Where do I get the "Estimated High Earnings Per Share" for this calculation?" The answer is from the trend line you drew on Page 1 of the SSG form. Find the point where the EPS trend line you drew intersected with the last year on the graph -- that's your projection of the stock's high EPS over the next five years.

However, before you calculate the High Price, you should apply some judgement to the selection of a future Average High Price/Earnings Ratio, rather than blithely filling in the blank from the default value.

A stock's P/E Ratio reflects the market's expectations of that stock's future growth, so a company that is growing very rapidly will have a Price/Earnings Ratio that is also very high. Over time, it is very rare for a company to maintain annual earnings growth more than 30%, and as that growth inevitably slows, the P/E Ratio will decline as well. In addition, companies with high P/E Ratios are susceptible to severe "corrections" if the company's earnings miss analysts' expectations for a single quarter. If you accept a High P/E Ratio that is very high, you will set a Future High Price target that the stock will unlikely reach.

Well, how high is **too high**? Ralph Seger, the *Repair Shop* columnist from **Better Investing** magazine, often says that, as high P/E Ratios discount the future, **very high** P/E Ratios discount the hereafter as well! He advises investors never to project a future High Price/Earnings Ratio that is greater than 20.

While this may be a conservative approach, in any case, a High P/E Ratio that's higher than 25 should give a prudent investor cause to re-evaluate the choice. By cautiously selecting a High P/E Ratio that best reflect's the company's future growth, you can avoid a nasty surprise later on.