Earning per share, also called net income per share, is a market prospect ratio that measures the amount of net income earned per share of stock outstanding. In other words, this is the amount of money each share of stock would receive if all of the profits were distributed to the outstanding shares at the end of the year.
Earnings per share is also a calculation that shows how profitable a company is on a shareholder basis. So a larger company’s profits per share can be compared to smaller company’s profits per share. Obviously, this calculation is heavily influenced on how many shares are outstanding. Thus, a larger company will have to split its earning amongst many more shares of stock compared to a smaller company.
Earnings per share or basic earnings per share is calculated by subtracting preferred dividends from net income and dividing by the weighted average common shares outstanding.
Although many investors don’t pay much attention to the EPS, a higher earnings per share ratio often makes the stock price of a company rise. Since so many things can manipulate this ratio, investors tend to look at it but don’t let it influence their decisions drastically.
Growth in earnings per share is everything. The expected future growth in earnings per share (“EPS”) is an incredibly important factor in identifying an under-valued stock. The impact of earnings growth is exponential. Over the long run, the price of a erefore stocks with higher earnings growth should offer the highest capital gains. And doustock will generally go up in lock step with its earnings (assuming the P/E ratio is constant). Thbling the growth more than doubles the capital gain, due to the compounding effect.
Given the importance of identifying companies that will grow earnings per share at high rate, we then need to consider how to identify which companies will achieve high growth rates. One obvious way to identify high earnings per share growth companies is to find companies that have demonstrated such growth over the past 5 to 10 years. We can’t assume the past will always reflect the future, but logically stocks that have grown earnings per share strongly in the past are a good bet to continue to do so.
Magellan Midstream Partners, L.P. (NYSE:MMP) have shown a high EPS growth of 27.20% in the last 5 years and has earnings growth of 26.40% yoy. Analysts have a mean recommendation of 1.80 on this stock (A rating of less than 2 means buy, “hold” within the 3 range, “sell” within the 4 range, and “strong sell” within the 5 range). The stock appeared -18.50% below its 52-week highs and is up 11.60% for the last five trades.
Boeing Co (NYSE:BA) shares are trading -7.91% below the 52-week high and has displayed a high EPS growth of 31.60% in last 5 years. The 1 year EPS growth rate is 23.60%. Its share price has grown 10.23% in three months and is down -1.39% for the last five trades. The average analysts gave this company a mean recommendation of 2.20.
LyondellBasell Industries NV (NYSE:LYB) floats -16.39% below the 52-week top level and its EPS growth rate was 29.00% over prior 5 years with earnings growth of 4.10% yoy. Mean recommendation on this stock is 2.30. The stock has a 1-year performance up 11.23% and positive at 0.55% in last five trading sessions.