One of the primary metrics investors use to evaluate a company’s profitability and growth potential is Earnings Per Share (EPS).
To weave a more comprehensive understanding, you can use the Deepvue EPS Rating to gauge a stock’s EPS performance against other stocks in the market.
In this blog, we discuss how the EPS Rating can be used to help you along your trading journey.
Understanding the EPS Rating
Think of EPS Rating as a race where stocks compete against each other based on their EPS.
EPS Rating provides a comparative analysis of a company’s past, current, and future earnings performance relative to all other stocks.
Real-World Application: Strong Earnings Growth
A company’s EPS Rating is heavily influenced by its recent earnings performance and growth estimates, both quarterly and annual.
Imagine a company that consistently reports positive earnings and shows an acceleration in those earnings.
Such a performance can significantly boost a company’s EPS Rating, placing it ahead of other stocks.
This boost in EPS Rating can potentially make it a more attractive investment than its counterparts for institutional and retail investors alike.
For instance, a tech startup that secures a large contract would likely see a boost in their EPS Rating due to their increasing growth estimates.
Here is a example of the EPS Rating in Deepvue.
The Role of Earnings Estimates
Earnings estimates also play a crucial role in determining a company’s EPS Rating.
Positive quarterly and annual earnings estimates are a clear signal that analysts expect a company’s earnings to grow in the future. This leads to a higher EPS Rating.
On the other hand, negative earnings estimates suggest that analysts expect the company’s earnings to decline, making it a less attractive investment. This leads to a lower EPS Rating.
For example, a company facing regulatory hurdles or stiff competition might see its earnings estimates downgraded, leading to a lower EPS Rating.
Jump to: Understanding the 1-99 RS Rating
Calculating The EPS Rating in Deepvue
The EPS Rating takes into account a variety of factors, including past, present, and future earnings growth, as well as the stability of the stock’s earnings growth relative to all other stocks in the database.
The EPS Rating’s calculation is based on a weighted average of a company’s historical and estimated earnings on a quarterly and annual basis.
The rating is from 1 – 99, with 99 being the best and 1 being the worst.
Each of the components below are given a different weight in the calculation, reflecting their relative importance in assessing a company’s profitability and growth potential.
- Most Recent Quarters and Annual Reported Earnings: These are given greater weight in the calculation as they provide the most up-to-date snapshot of a company’s profitability. Strong current earnings can indicate a company’s ability to generate profits in the current market environment.
- Other Historical Quarters and Annual Reported Earnings: These provide a historical perspective on a company’s earnings performance. While past performance is not a guarantee of future results, consistent earnings growth over time can be a positive sign.
- Future Earnings Estimates: These are also given significant weight in the calculation. Positive future earnings estimates can signal that a company is expected to grow its earnings, which can be a positive indicator for its stock price. Conversely, negative earnings estimates can suggest potential challenges ahead.
- Earnings Stability: Earnings stability can be difficult to measure, but stocks with consistent earnings reports and growth tend to have strong earnings stability. Conversely, stocks with inconsistent earnings reports and growth tend to have weak earnings stability.
This part of the rating is given less weight, yet remains crucial to consider when looking at multiple like candidates for investment.
It’s important to note that while EPS Rating can provide valuable insights into a company’s profitability and growth potential, they should not be used in isolation. Consider other factors and the price chart.
Case Study: Tesla (TSLA)
Tesla (TSLA) is a prime example of when a stock’s massive run correlated with earnings growth.
At the beginning of its run in 2019, Tesla’s earnings were lackluster due to its focus on future growth. However, the stock began its run when the earnings estimates 4 – 8 quarters in the future turned positive.
These are the same factors that lead to a high and improving EPS Rating.
In conclusion, understanding the EPS Rating is crucial to making informed investment decisions.
Deepvue’s many ratings, including the EPS Rating, make it easier than ever to find potential growth opportunities in the market.
A potential EPS Rating-based Screen in Deepvue:
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