4 Important Use of EPS While Choosing Stocks

How to use EPS

4 Important Use of EPS While Choosing Stocks

EPS is a famous indicator to check while investing in stocks. This shows basically the profitability of company. In this article I will discuss about 4 Important Use of EPS While Choosing Stocks so that next time whenever you decide to buy stocks, you will perform these checks.

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Why Is Earning Per Share Is Important?

Earning per share is important because it tells you the insights of company. It gives you a fundamental understanding of company and the amount of profit it is generating for its share holders. Before choosing any stocks these are the 4 ways you can use EPS to check whether you should invest or not in  a particular company.

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Use No. 1 : How Much Company Is Earning?

Well, in my point of view though EPS is not the only thing to watch for profitability of a company, but yes, it's definitely an important parameter to watch. It gives you a basic understanding and a direction to form your opinion in selecting a stock of a company. If a company have high EPS that means Company is earning more and that's a very good news for shareholders. Similarly if a company has low EPS that means company is not generating profit and that is a sign of caution.

Use No. 2 : Winner Winner Dividend Dinner

This is the second indication of EPS. If a company is generating good amount of profit then it is sure that it will directly impact Dividend and shareholders in the company will be happy to get more dividends. When company will pay more dividend, loyalty of investors will rise and goodwill will continue in the eyes of all stakeholders.

Use No. 3 : Is The Company Growing?

Yes, from EPS you can know the growth rate of company in terms of profit. There are many companies which will show sales growth as their primary result but for an investor it is less important. An investor is mainly concerned with profits and for that he will see the growth in net profit and growth in EPS. You can check the EPS of any company for last 5 years and it will be clearly evident that whether the company is growing or not.

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Use No. 4 : EPS Will Help To Determine Market Price

Yes, EPS is helpful to calculate market price of a share as it is one of the important factor in determine that. To find market price we have to multiply EPS with P/E ratio. So from the formula it is clear that high EPS means High Market Price and Low EPS Means Low Market  Price. This will also help to determine which shares are outperforming the sector and which shares are lagging behind.

So I have mentioned 4 Important Use of EPS While Choosing Stocks and I guess you all will agree with these 4 Uses. If you know any other uses, then tell me in comment box. If you have any query then ask me in comment box.

Happy Investing.

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