Stock Investment EPS

EPS

A term that any beginner investor starting stock investment has heard of at least once, it's EPS. EPS stands for Earnings Per Share, and it is one of the most basic indicators for evaluating a company's performance.

Why is EPS important?

EPS is like a company's report card. A high EPS means that the company is growing healthily, and it suggests the possibility of increased dividends or stock price increases for investors. Conversely, a low EPS can be a signal that the company's profitability is declining.

EPS Calculation: A Simple Explanation

The method of calculating EPS is very simple.

EPS = Net Income / Number of Issued Shares

• Net Income: It is the pure profit a company made in one year.
• Number of Issued Shares: The total number of shares issued by the company.
  

For example, if a company's net income is 10 billion won and the number of issued shares is 100 million, then the EPS is 100 won. In other words, it means that one share of this company generated a net profit of 100 won.

Is a stock with high EPS a good stock?

Stocks with high EPS generally mean high profitability and growth potential. However, it cannot be simply concluded that it is always a good stock.

• Short-term factors: EPS may temporarily increase due to short-term favorable factors.
• Overvaluation: Even if the EPS is high, the stock price is not always undervalued.

Should I not invest in stocks with low EPS?

Stocks with low EPS may mean low profitability or lack of growth potential. However, it does not necessarily mean that it has no investment value.

• Undervaluation: The market may have undervalued the company's value.
• Turning point of growth: Although profitability was low in the past, there is also the possibility of achieving growth through new business models or technological introduction.

Factors Affecting EPS

EPS is affected by various factors.

• Sales: If sales increase, EPS generally increases.
• Costs: If costs such as sales and administrative expenses and depreciation increase, EPS decreases.
• Taxes: If the corporate tax rate increases, net income decreases, and as a result, EPS also decreases.
• Number of Issued Shares: If the number of issued shares increases, EPS decreases.

Points to Note When Analyzing EPS

• Don't be too obsessed with short-term fluctuations: EPS can fluctuate significantly in the short term, so it is important to understand the long-term trend.
• Analyze with other indicators: It is difficult to accurately evaluate the value of a company with only EPS. It should be analyzed comprehensively with other indicators such as PER and PBR.
• Consider industry characteristics: The meaning of EPS may differ depending on the industry, so it should be analyzed considering the characteristics of each industry.

Using EPS with Other Indicators

• PER (Price-to-Earnings Ratio): The value obtained by dividing the stock price by EPS, indicating how expensively the stock is being traded.
• PBR (Price-to-Book Ratio): The value obtained by dividing the stock price by the book value per share, indicating the value of the stock relative to its assets.

It is better to make investment decisions by comprehensively analyzing various indicators such as EPS, PER, and PBR.

Conclusion

EPS is an important indicator for evaluating a company's profitability. However, EPS alone cannot judge everything about a company, and it must be analyzed comprehensively with other indicators. Before making an investment decision, it is always important to gather sufficient information about the company and seek the help of an expert.

Disclaimer: This content is not investment advice, and investment decisions should be made at your own discretion and responsibility. Please consult with an expert before investing.