Earnings per share [EPS]
Knowing what earnings per share for a stock is and understanding its effect on the value of a company is vital for anyone who is serious about investing in the stock market.
The earnings per share for a company is simply what the company earns, in profit, per share of its stock. If a company earns 100 million dollars a year and has 50 million of its shares on the market, then that companies EPS [Earnings per share for short] is 2 dollars.
Fortunately you should not have to calculate the EPS of a company. Almost all financial websites, yahoo finance, CNBC… automatically calculate the EPS for a company along with many other important financial figures.
When doing research for a company you need to look deeper than just what the EPS for a company is currently. You need to look at the past as far as you can and make sure that the EPS for a company has steadily increased. A company that consistently grows its business and makes more and more money each year is a company that you should be very interested in as an investment. It is understandable for the EPS of a company to be down on occasion. Earnings for companies took a slight dive in 2008-2009 compared to 2007 in general thanks to a serious recession.
Not only should you look to past EPS numbers, you should also look to future earnings per share estimates. Analysts are paid to estimate how much a company will earn in the future and they are usually pretty accurate. The larger a company is the easier it is to make an educated guess on the EPS for a company. Normally yearly EPS estimates will be within 5-10% of the actual number.
The stock market does not live in the past or in the present, the market is trading off of estimates of what will happen in 6-12 months believe it or not. It is important to stay ahead of the game and to absorb as much information about a potential investment before actually devoting any of your hard earned money towards it. Checking to see past, present, and estimated future earnings per share numbers is a great and necessary way to conduct research.