What Is Earnings Per Share (EPS)?

Earnings Per Share (EPS) is one of the key metrics investors use to gauge a company’s profitability and growth potential. It’s a snapshot of how profitable a company is and often plays a big role in a stock’s valuation.

Higher EPS usually indicates a more profitable company, making it an attractive choice for investors. But while EPS is informative, there’s a deeper, more comparative way to evaluate stocks based on their earnings performance.

That’s where the Deepvue Earnings Per Share Rating comes in. It helps you see how a stock stacks up against others in the market.

In this post, we’ll dive into how you can use the EPS Rating to fine-tune your focus on the fundamentally strongest stocks.

Why Does EPS Rating Matter?

The Deepvue Earnings Per Share Rating helps you compare a company’s Earnings Per Share performance against all other stocks in the market. Think of it as a competitive scorecard, ranking stocks based on their earnings power.

Deepvue’s EPS Rating gives you a way to compare a company’s earnings performance providing a comprehensive benchmark for evaluating a company’s earnings performance against all other stocks. This metric assesses quarterly and annual earnings including historical, current, and future earnings projections.

By integrating these elements, Deepvue’s EPS Rating offers a holistic perspective on a company’s fundamental growth, helping investors assess its financial health in comparison to competitors in the market.

The Deepvue EPS Rating evaluates stocks on a scale from 1 to 99. A rating of 99 signifies that the company excels in earnings performance, whereas a score of 1 shows it lags significantly behind.

This scoring system allows investors to quickly determine the earnings strength of a stock in relation to the broader market.

How Strong Earnings Growth Impacts The EPS Rating

A company’s Earnings Per Share Rating is influenced heavily by its recent earnings and growth estimates both quarter over quarter and year over year. When a company consistently reports strong earnings, its rating goes up making it more attractive to both retail and institutional investors.

For example, imagine a tech startup that lands a big contract. With increasing growth estimates, its rating would rise, signaling it as a promising investment opportunity.

When evaluating stocks, adding the EPS Rating to your data panel can help you zero in on companies with strong fundamentals and earnings stability.

Why Earnings Estimates Matter

Future Earnings Estimates also play a key role in determining a company’s EPS Rating.

If analysts project positive earnings for the next few quarters or years, the company’s rating will increase.

DASH never achieved positive earnings since its IPO which resulted in a low Earnings Per Share Rating. Once analysts began forecasting positive future estimates, the EPS Rating began to increase. Keep the EPS Rating in your data panel or column setting as it may be easy to miss the change in fundamentals.

On the other hand, if analysts expect earnings to drop, the rating will go down, making the stock less appealing to investors. For instance, a company dealing with regulatory challenges or fierce competition might see its earnings estimates cut, which would lower its EPS Rating.

At the same time, LYFT found a competitive disadvantage against other similar stocks. LFYT saw its EPS Rating decreasing over time as it reported sporadic earnings with decreasing future estimates.

How Deepvue Calculates The EPS Rating

Deepvue’s Earnings Per Share Rating considers several factors to give you a comprehensive view of a company’s earnings performance. Each of the components below is given a different weight in the calculation, reflecting their relative importance in assessing a company’s profitability and growth potential.

1. 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.
   
2. 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.
   
3. 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 of potential growth. Conversely, negative earnings estimates can suggest potential challenges ahead.
   
4. Earnings Stability: 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.

Case Studies: How EPS Ratings Signal Potential Growth

Tesla (TSLA) is a prime example of how strong earnings growth can drive a high EPS Rating. In 2019, Tesla’s earnings were weak as the company focused on scaling up. But once future earnings estimates turned positive, the EPS Rating climbed, and the stock went on a massive run. This demonstrates how a strong EPS Rating can signal the start of a significant upward trend.

In 2023, Affirm Holdings (AFRM) began forming a market bottom, and its EPS Rating started to increase based on future growth estimates. When Affirm reported positive earnings for the first time, the rating jumped again, catching the eye of investors looking for long-term growth opportunities.

Screening For The Highest EPS Rating

Regularly screen for stocks with high EPS Ratings to ensure you are focused on the fundamentally fastest-growing stocks.

Look for stocks with the highest EPS Ratings in addition to all your other fundamental requirements.

Key Takeaways

The EPS Rating provided by Deepvue allows investors to compare a stock’s earnings performance against all other stocks in the market on a scale from 1 to 99. A higher number indicates superior earnings performance relative to other companies.

The rating not only considers historical and current earnings but also gives significant weight to future earnings estimates. This forward-looking approach can help identify companies poised for growth, making it a valuable tool for investors looking for growth stocks.

Strong EPS growth and a high EPS Rating can lead to an increase in stock price due to heightened demand.