About Value Line
An Evaluation of Value Line's 3- to 5- Year Price Appreciation Potential
The following is an update to the evaluation of our 3- to 5-year price appreciation potential. The results of this study were first published on November 8, 2002, with subsequent updates furnished on February 11, 2005 and January 27, 2006. The original article and accompanying chart detailed the methodology behind our evaluation and discussed some of the more interesting results. For the benefit of our subscribers, we briefly review the methodology used for this analysis.
Price Appreciation Potential
The estimate of the median price appreciation potential is found by first calculating the percentage change between the current price of each stock in our universe and the middle of its 3- to 5- year Target Price Range. These figures are then arrayed, and the median price appreciation potential is determined. We select the median of the array (the middle) as the most likely price, in order to play down the effect of outliers, that is, excessively large or small percentage price changes.
The chart included below depicts the results of those projections from 1983 to 2006, using the Value Line Arithmetic Index as our measure of the market. For simplicity sake, we take the actual price as the average of the middle year of the 3- to 5-year forecast, so that a projection made at the end of 1983 would be compared to the average price of the index in 1987. Strictly speaking this would be a 3 1/2 year forecast, from the end of 1983 to midyear 1987.
Update for 2006
Our estimate for the year 2006 (made at the end of 2002) was 1861. The average price of the Value Line Arithmetic Index in 2006 was 2047. Interestingly, the year ended with the Index at 2217, about 8% above the 4-year projection made in 2002.
The average deviation between the projected
and actual average prices was
16% (ignoring signs). The median deviation
during this period was 14%.
Our projection for 2010 now stands at
3000, 35% above the current level.