The earnings per share is derived from the total earnings of the company. It is the total earnings divided by the number of common shares outstanding.
The earnings per share can be used to value a company. For example, if a company’s earnings per share is $2 and a price to earnings multiple of 10 times can be placed on the company after comparing it to its peers, the company may be worth $20 per share.
Earnings per share growth
In general, earnings per share growth will cause a company’s share price to increase.
Why should option traders be concerned about EPS and EPS growth?
With earnings per share growth, the management is able to pay down debt, increase dividends and even do share buybacks that will help the company’s stock price to be revalued upwards over time.
Read: Net Earnings