Select Page

What is EPS in Stocks?

Curated by the Ticker Table Team

EPS, or earnings per share, is one of the most widely used metrics for fundamental stock analysis. This figure is reported quarterly by public companies and tracked closely by financial analysts.

But what does EPS really mean, and why is it so important for investors? In this guide, we’ll cover everything you need to know about EPS in stocks.

Stocks And EPS

Back to Basics: Corporate Earnings

In order to understand EPS, it’s important to take a step back from the day-to-day fluctuations of stock prices. When you buy shares, what you’re really buying is a stake in a company’s future profits.

Those future profits yield returns for investors in the form of a dividend or share buyback. Alternatively, they might be re-invested in the company to drive growth, which in turn boosts expectations for more profits further down the road. Those future, larger profits can then be used to give investors an even greater return.

So, stock prices should directly reflect investors’ expectations for what a company will earn in the future.

What is EPS?

Aggregate corporate earnings are simple to track over time. However, the number of outstanding shares a company has can change over time and different companies have different numbers of outstanding shares. So, investors need to know how much profit companies are generating on a per-share basis in order to make meaningful comparisons over time or between companies.

That’s where EPS, or earnings per share, comes into play. EPS is simply a company’s net profits (after preferred dividends) divided by the current number of shares outstanding:

(Net profit – Preferred dividends) / Number of shares outstanding

This formulation offers what is known as a company’s basic EPS, but there are also more complex ways to calculate EPS. For example, diluted EPS divides net profits by the current number of shares outstanding plus the number of shares that could be released by employee stock options, warrants, and other convertible instruments.

Investors can also calculate EPS from continuing operations, which may be useful if a company is growing or shrinking. In this case, only income from divisions or locations of the company that will still be operating over the next quarter or the next year is counted towards net profit for the EPS calculation.

EPS

Why Does EPS Matter?

EPS matters to investors for two key reasons.

First, it’s a standardized way to measure how much profit a company is generating – regardless of whether that profit is distributed to shareholders immediately or re-invested in the company. EPS can be compared directly across companies, regardless of their size or how many shares they have outstanding. It can also be used to track whether a company is more or less profitable over time even as the number of shares outstanding changes.

Second, EPS can be used as a basis for determining how much value, on a per-share basis, investors are getting from a company. For example, EPS is commonly used to calculate a company’s P/E, or price-to-earnings per share, ratio. The P/E ratio offers information about how much investors are willing to pay for each dollar of earnings that a company’s shares provide. Often, the P/E ratio is used by fundamental investors to determine whether a company is overvalued or undervalued relative to its peers in the same market sector.

Earnings Per Share

What Should You Look at When Analyzing EPS?

One of the main things to look at when analyzing a company’s EPS is whether it has grown or declined over time. This can provide information about whether, on a per-share basis, a company is bringing in more or less profits that can be paid out to investors or re-invested in the company. Typically, investors want to see strong EPS growth over time because this means that their return or potential future return is increasing.

Another thing to consider is the P/E ratio. The P/E ratio is most useful when it is compared against similar companies in the same market sector. In that case, it can provide information about whether shares of one company offer better value for your money than shares of another company. However, keep in mind that comparing P/E ratios assumes that all else is equal – in many cases, a company can have a higher P/E ratio because investors expect it to grow more in the future than its competitor.

It’s also important to keep in mind that while EPS enables you to compare earnings between companies, it leaves out information about how those two companies compare in size. If two companies have the same EPS, but one has far fewer assets, the smaller company is using its assets much more efficiently to generate its return on investment.

In addition, investors should be aware that EPS isn’t everything. For stocks that don’t pay a dividend, the link between EPS and share price can be tenuous since investors don’t actually have access to the company’s earnings. Be sure to look at a wide range of fundamental factors, including total valuation, projected growth, and cash flow when considering investing in a stock.

Analyzing EPS

Conclusion

EPS is an important fundamental metric that provides information about a company’s earnings. EPS is comparable over time and across stocks, and it can offer insight into the market value of a company’s earnings when normalized to the stock price (the P/E ratio). However, investors should be careful to use EPS as just one factor out of many when considering what a stock is worth and whether it is overvalued or undervalued.

The #1 Investment of 2021

Our team has analyzed thousands of stocks in hundreds of sectors. Looking for stocks with massive growth potential? Check out the top stock pick for 2021.

Top Stock Lists

Best 3D Printing Stocks

The stocks of companies that provide 3D printing software, services, and use 3D printing technology in their manufacturing processes are called 3D printing stocks. Similar to robotics, 3D printing is one of the most disruptive technologies in recent times and is set...

Best Electric Car Stocks

Electric car stocks are stocks of the manufacturers of electric vehicles. The sales of electric cars started in 2013 and have demonstrated a steady rally in the past few years. The sales of battery-powered cars will not overpower traditional combustion engine cars...

Best Tech Stocks

Technology stocks are the stocks of the companies that undertake research, development, and distribution of technological products and services. It includes stocks of semiconductor companies, software manufacturers, microchip companies, social media platforms, and...

Best Coal Stocks

Stocks of companies involved in the mining of coal are known as coal stocks. A large number of companies across the globe extract coal from the earth, which is used to generate electricity. Despite the awareness about global warming and greenhouse gas emissions and...

Best High Short Interest Stocks

The total number of shares sold short without being covered, of a particular stock, is called the short interest of that stock. The short interest is represented as a percentage. Thus, stocks with a high percentage (usually over 20%) of short interest are termed as...

Best Cloud Stocks

Cloud computing has been the most disrupting trend in the past decade. The process of saving information from users’ systems in small packets at remote locations on the cloud forms the basis of cloud computing. Cloud computing has changed the way we communicate, live...

Best Railroad Stocks

Stocks of companies that are involved in the transport of industrial and commercial goods through the rail route are termed as railroad stocks. Railroad industry forms an integral part of the US economy; hence railroad stocks provide investors with the opportunity to...

Best Bear Market Stocks

Bear market stocks are the ones that perform well, even during bearish market times when stock prices are falling. Bear markets are the market situations when stock prices are plummeting, investor sentiments are negative, and there is a high inclination towards...

Best Gaming Stocks

The stocks of gaming companies, including pure-play games, video games, mobile games, and competitive games, are called gaming stocks. The gaming industry has evolved by leaps and bounds over the last decade. The evolution of gaming companies and gaming stocks has...

Best Recession Stocks

While all stocks are affected by economic downturns, there are some that fare better than others in economic recessions. Such stocks are called recession stocks. Recession stocks mostly belong to stable and well-established companies that continue to provide regular...

Best Bank Stocks

The stocks of banks and financial institutions are called bank stocks. Such financial institutions are highly regulated and are licensed to hold deposits and give loans to businesses and individuals. Bank stocks experience similar risks and rewards as other public...

Best Cybersecurity Stocks

Cybersecurity stocks are the stocks of companies involved in the protection of the Internet-related world from cyberattacks. With the advent of technology, more and more people are getting dependent on computers and the Internet while, at the same time, more and more...

Best Stocks Under $1

Looking for the best stocks under $1? You came to the right place. Stocks that are priced at under $1 per share are often considered to be penny stocks. Stocks valued at under $1 usually belong to new and small companies, including startups. These companies and stocks...

Best FinTech Stocks

Stocks of fintech companies that implement digital technology to the financial world are known as fintech stocks. Fintech companies apply the advancement in technology to payment systems, e-commerce, cryptocurrencies, money transfers, personal finance, lending, and...

Best Transport Stocks

Stocks of companies that facilitate transportation are collectively known as transport stocks. They include stocks of railroad companies, railway operators, airlines, electric cars, freight carriers, transportation manufacturers, and logistics providers....

Best Telecom Stocks

Stocks of the companies involved in telecommunications constitute telecom stocks. They include stocks of companies that enable telecommunications on a global level, either through the phone or the Internet, wired or wirelessly. With the rapidly evolving telecom space,...

Best Infrastructure Stocks

Stocks of companies that build and maintain the infrastructure of a country, including communications, water, transportation, electricity, and buildings, are collectively termed as infrastructure stocks. It is a broad category of stocks consisting of building bridges,...

Best Index Stocks

Stocks of the mutual funds and ETFs that track and follow the performance of a stock market index are termed as index stocks. Index stocks provide diversification to the investment portfolio by spreading out investments across different asset classes. They also manage...

Best Microchip Stocks

The stocks of companies involved in the design and fabrication of integrated circuits or microchips are termed as microchip stocks. With technology so prevalent in our lives, microchips are increasingly used to program logic and for computer memory to be used in...

Best Clean Energy Stocks

Clean energy stocks are stocks of companies that generate and supply energy through renewable and clean resources. The clean energy industry and stocks have seen an uplift in recent years with worldwide initiatives towards clean and alternative sources of energy. The...

Top ETF Lists

Best Bonds ETFs

Bond ETFs are the specific exchange-traded funds that invest only in fixed-income securities like bonds and treasuries. They differ from bonds in the way that they are traded over exchanges as opposed to the bonds that are sold over the counter. Bond ETFs work as...

Best Vanguard ETFs

Vanguard is the second-largest U.S. exchange-traded fund (ETF) sponsor by assets. In general, Vanguard is widely regarded as one of the most popular ETF-issuers in the world. According to estimates, Vanguard has around $5.3 trillion worth of assets under its...

Best Performing ETFs

ETFs are the pools of money that invest in a variety of stocks, commodities, or a combination of assets. They follow the performance of benchmark indices like the S&P 500 and are traded on the leading exchanges. ETFs are effective modes of investment for investors...

Best Financial ETFs

Financial ETFs are the exchange-traded funds that invest in the stock of financial services companies. These companies include banks, insurance companies, mortgage companies, investment banks, brokerage firms, and companies that provide consumer credit. The...

Best Water ETFs

Water ETFs are the exchange-traded funds that invest in water stocks or stocks of companies involved in the water industry. This includes companies that perform water purification processes, bottle the purified water, and other related products. Water ETFs provide...

Best Semiconductor ETFs

Semiconductor ETFs are the exchange-traded funds that invest in companies that manufacture semiconductors. It includes the companies that directly make semiconductors as well as the ones that supply goods to these semiconductors manufacturers. The semiconductors...

Best High Yield ETFs

There are many types of ETFs, from financial ETFs to energy ETFs, so what sets apart high yield ETFs? High yield ETFs are the exchange-traded funds that invest either in stocks of companies that pay high dividends or in bonds of companies that pay high interest. The...

Best Gold ETFs

Gold ETFs are the exchange-traded funds that invest in gold and gold derivative contracts backed by gold. Investors do not get physical ownership of gold by investing in or redeeming gold ETFs; instead, they only get access to the cash equivalent of the transaction....

Best European ETFs

The exchange-traded funds that invest in the stocks of Europe-based companies are termed as European ETFs. These ETFs not only allow investors to broaden their exposure and geographical diversification, but they also help investors to aim at specific industries or...

Best Energy ETFs

The exchange-traded funds that invest in the securities of energy companies, including natural gas, oil, and alternative energy companies like those for electric cars. The exposure also consists of securities of the companies that produce and transport energy...

Best Defense ETFs

Defense ETFs track the performance of equities of companies in the aerospace and defense sector. These companies include the ones involved in the manufacturing, distribution, and transportation of aircraft and their parts, radar equipment, military aircraft, and other...

Best Blockchain ETFs

Blockchain ETFs are the exchange-traded funds that either track the price movement of bitcoin and other cryptocurrencies or invest in stocks of companies that use the blockchain technology to transform business applications. With the technological advancement and...

Best 3X ETFs

There are many types of ETFs out there. They range from financial ETFs to high yield ETFs, and then there are 3X ETFs. 3X ETFs are the triple leveraged ETFs. These ETFs are designed to amplify the returns of the benchmark indices by three times by using financial...

Best Oil ETFs

There is such a large variety of ETFs that you can invest in. There's financial ETFs and Energy ETFs to name just a few, and then there are Oil ETFs. Oil ETFs are the exchange-traded funds that invest in the stocks of oil companies. They are simple and effective...

Best Biotech ETFs

The exchange-traded funds that invest in the stocks of biotechnology companies are known as biotech ETFs. Biotech companies are mainly involved in revolutionary processes in the healthcare industry, including genetic engineering, molecular biology, and recombinant DNA...

Best Tech ETFs

Technology ETFs are the exchange-traded funds that hold assets including the technology stocks.  Some tech ETFs own all the stocks that are related to technology, while others have a niche focus by buying only semiconductor stocks or only cybersecurity stocks....

Best Small-Cap ETFs

Small-cap ETFs are the exchange-traded funds that invest in the stocks of companies with a market capitalization between $250 million and $3 billion. The portfolio is diversified with small-cap companies and stocks belonging to different sectors and separate...

Best Healthcare ETFs

Healthcare ETFs are the exchange-traded funds that invest in the stocks of healthcare companies. Healthcare is the second largest sector among the S&P 500 index and is an excellent avenue for investments. By investing in healthcare ETFs, investors get to invest in...

Best Fidelity ETFs

Fidelity, the market leader in investment planning and financial services, offers a wide array of 28 ETFs for investors to choose from. The exchange-traded funds of Fidelity help investors create a diversified portfolio of investments by catering to different factors,...

Best Dividend ETFs

A dividend is defined as a distribution of reward from the company's earnings to its shareholders. Investing in dividends is one of the slower and more patient approaches one may take when considering their investments. This type of investing belongs mostly to a more...