How do you calculate the target price of a company?

The method you are describing is using relative valuation where valuation of an asset is derived from the pricing of comparable assets, standardised using a common variable such as earnings, cash flows, book value, or revenues. In your case, it is the P/E ratio.

The advantage of this method is that it is simple and easy to relate to. However, this method assumes that the companies are priced correctly on average by the market. Also, the definition of comparable firms is a subjective one. Consequently, the companies used for comaparison may be baised.

Ideally, you should include all 'comparable firms' within the industry/market in your calcualation and have a set of defined guidelines on which are 'comparable'.