Definition: EPS is the net income available to common shareholders of the company divided by the number of shares outstanding.
Make sure the company is not trying to manipulate their EPS numbers to make it look like they are more profitable. Also, look at the growth in EPS over the past several quarters / years to understand how volatile their EPS is, and to see if they are an underachiever or an overachiever. In other words, have they consistently beaten expectations or are they constantly restating and lowering their forecasts?
For eg: If the total income is $ 1 million , and total shares is 1 million then EPS is $ 1 million/1 million shares = $1.
EXERCISE
Which one of the below is good share to buy based on EPS?
Company A: EPS - $1, market price $100
Company B: EPS - $2, market price $150
Make sure the company is not trying to manipulate their EPS numbers to make it look like they are more profitable. Also, look at the growth in EPS over the past several quarters / years to understand how volatile their EPS is, and to see if they are an underachiever or an overachiever. In other words, have they consistently beaten expectations or are they constantly restating and lowering their forecasts?
For eg: If the total income is $ 1 million , and total shares is 1 million then EPS is $ 1 million/1 million shares = $1.
EXERCISE
Which one of the below is good share to buy based on EPS?
Company A: EPS - $1, market price $100
Company B: EPS - $2, market price $150
