When you are new to investing or trying to do a quick evaluation of a stock that you are not really familiar with looking at the companies Earnings per Share (EPS) is good to review. Bluntly, it will tell you right away if the company is making money or not.
Investopedia defines EPS as the company’s profit divided by the outstanding shares of its common stock. The higher the number the more profitable the company is considered to be. If the number is negative then the company is losing money.
Like all things though, that is a simplification and may be worth reviewing more. I normally look at the trend of EPS over several years. I want to see the number getting bigger over time. If the number is positive, but getting smaller, then it is trending less profitable. Also, a trend over time many help understand a single bad year or a new company that is growing. The EPS may be negative but if the trend is moving toward profitability that can signal a good opportunity to get in on a growing company.
Therefore, do a little homework and look for EPS trends over time to help you understand a companies profitability. In general stick with companies that have a positive EPS but it doesn’t take long to look a little deeper and evaluate the EPS trend that will often tell you more of the picture. Then you can make a better decision as to whether you want to invest or not.
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Patient and Disciplined Saving 