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Stock Earnings-Per-Share

17 April 2006 - Markets - Editor

I've always felt that the only stock that's important is the one I own. It's never done me any good to compare my stock with another, or for that matter compare the earnings of two different companies.

If I'm searching for a comparison tool, I'll look at earnings-per-share, better known as EPS. With EPS I simply take the net earnings and divide by the outstanding shares.

For example, the Thimble Button Company has earnings of $1000 and 10 shares outstanding, which equals an EPS of 100 ($1000 / 10 = 100). Conversely, Zipper & Button Inc. had earnings of $1000 and 50 shares outstanding, which equals an EPS of 20 ($1000 / 50 = 20).

So, you should go buy Thimble Buttons with an EPS of 100, right? Maybe, but nothing is that simple. When the companies are in the same industry knowing the EPS may give you a good base line. Knowing whether it's a good stock is another issue altogether.

When looking at earnings-per-share, always keep in mind last year's numbers, this year's numbers and the next years or future numbers. And remember that current and future numbers are still only projections.

 


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