What is EPS (Earning per Share)?

Someone once said the major factor that drive the stock price up or down is depend on the profit that company can make. The stock price of well-performing companies that have higher earnings per share every year tend to go up. Therefore, before buying stocks, we should always checking the EPS first.

What is EPS?

EPS stands for “Earning per Share”. To find the EPS value you need to take the “Net Profit” that the company made on that year and dividing it by the number of total shares of a company.

For example, Company A has made a net profit of $50 million and the company has a total of 300 million shares, which is equal to the company’s earnings per share of $0.16 (50,000,000 divided by 300,000,000). When buying stock we should select a company with EPS that grows every year. If the company can make a Net Profit grows for 5 consecutive years this would be very good, because it mean that the business has generate a strong profits consistently. And if the profit grows by an average of at least 20% each year, that stock can be considered as a growth stock.

Knowing how to differentiate between the types of stocks you’re buying can be very helpful in projecting returns and predict the cycle of that stock as a whole. Most of stocks with huge profit margins every year the stock prices tend to go up more than other types of stocks (the price will keep going up until the profit growth rate decreases). It surely better than the stock of some companies with have uneven profits every year, for example, some years have losses and unpredictable profits. If we buying this type of stock, we need to analyze whether the company has a story that will make the business return to be profitable or not. If there is a reason that company can makes a profit in the near future, the share price will often go up . These stocks are categorized as Turn Around stocks, but if the company’s stock has suffered repeated losses for several years and there is no sign of improvement. It is recommended that we do not mess with these stocks.

In some cases, when many companies operate for a while there may be a capital increase to expand the business which will increase the number of shares and cause the EPS to decrease (because the number of shares to be divided increases). It might not be a troubling thing, especially if the capital increase makes the company more profit than the capital increase proportion. But if the business starts to show that it may not be able to keep the growth momentum or there is an event that affects the fundamentals of the company, we may have to be careful and consider carefully whether we should continue to hold that stock or not.

We can find EPS information of each stock we interested on the major stock exchange platform or website around the world. Below example catured from the Stock Exchange of Thailand website. The picture below shows the key performance of PTT Public Company Limited and earnings per share (EPS) for the past five years during the year 2017 – 2021

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