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EPS

PER, PBR, ROE, EPS Explained for Beginner InvestorsLegendary stock investor Peter Lynch once said that there’s a reason why the majority of people make money in real estate, but not in the stock market. People spend months on finding the right property, whereas in choosing the right stock to invest in, they only spend a few minutes. In this post, I'll be explaining the concepts of: 1) Price Earnings Ratio (PER) 2) Price-to-book Ratio (PBR) 3) Return on Equity (ROE) 4) Earnings per Share (EPS) by explaining the formula, what they tell us, and the best way to understand these concepts through an example. Return on Equity (ROE) So let’s start with the Return on Equity, or ROE. This measures the profitability of a company in relation to stockholder’s equity. The ROE is calculated by dividing the net income by the shareholder’s equity. Price Earnings Ratio (PER) Next, we have the price earnings ratio, or the PER. This is a good tool to determine whether a company is overvalued. The PER is calculated by dividing the current share price by earnings per share. For instance, if a company’s share price is at $100, and their earnings per share is $10, this gives them a PER of 10. Price-to-book Ratio (PBR) Then, we take a look at the price to book-value ratio, or the PBR. This measures the market’s valuation of a company relative to its book value, and is calculated by dividing the market price per share by the book value per share. Earnings per Share (EPS) Lastly, the EPS, or earnings per share. This is simply the company’s profit divided by the outstanding number of shares outstanding, and works as a good indicator of how profitable a company is. Example - Let’s take a look at an example to help your understanding. - You currently have $100,000, and you decide to open a restaurant. - You are required to pay $100,000 in deposits, and $3,000 in monthly rent. - You started this restaurant in the form of a limited liability company. - You started the company with $100,000. - Given that you issue shares that are worth $10, you issue 10,000 shares in total. - A year later, you check how well your business has done. - You find out that the restaurant did $300,000 in revenue, and after subtracting all costs, you’re left with $30,000. - With this, you can calculate the return on equity by dividing 30,000 by 100,000, which gives you an ROE of 30%. - Through the ROE, you look at how much return your own money was able to generate in profits. - From the perspective of an investor, the higher the ROE, the better. - You can also calculate the EPS, or earnings per share. - In this case, the restaurant generates $30,000 in profits. - So if we divide that by the number of shares, which is 10,000, we get an EPS of $3. - Now let’s assume that you ran the business for 3 years, and you now want to sell your business to someone else, so you can move on to do other things. - How much do you want to sell the restaurant for? After 3 years, you now have loyal customers, and it consistently generates $30,000 in profits every year. - So, you decide to sell the restaurant for $200,000 in total, with a $100,000 premium on top of the deposit. - If someone buys the restaurant for that price, it means that you and the other party agrees that the business is worth $200,000. - Now if this restaurant is sold for $200,000, that means the $10 shares you hold are sold for $20. - When we invest in stocks, this is how we make money. - With all the information above, we can calculate the PER and PBR. - If a restaurant that generates $30,000 in net profits gets sold for $200,000, the PER is 6.7. - And then, we also have the PBR. - You started the business with $100,000 of your own money, and sold it for $200,000, which gives you a PBR of 2 - For the PER and PBR, the lower the better. - A low PER means that you are buying a company that generates a lot of net profit for a cheap price. - Same for the PBR. The lower it is, the more undervalued it is. Conclusion The PER, PBR, ROE, and EPS can be great tools to help us identify whether a stock is a good buy or not. Understanding these concepts are imperative for beginner investors. If you like this educational post, please make sure to like, and follow for more quality content! If you have any questions or comments, feel free to comment below! :)
Editors' picks
TVC:SPXEducation
by Michael_Wang_Official
39
Allstate should make a bullish trend line breakAllstate is one of my top picks in terms of both value and sentiment. In terms of technicals, it's a classic potential trend line breakout play. Value After a significant selloff this year, Allstate is still trading near the bottom of its 3-year valuation range in P/E, P/S, and P/D terms. The company is financially healthy, with a 78/100 score for financial health from S&P Global. It pays a solid, but sustainable dividend; I estimate 2.37% dividend return in the next 12 months, assuming the dividend gets bumped up to 58 cents in the first quarter of next year. In the last 12 months, the dividend was only 16% of GAAP EPS, which is a very comfortable level. The PEG ratio of 2.77 is pretty good, and the PSG ratio of 0.25 is extremely good. (Admittedly, analyst coverage is a little thin, so we're not working with very many different estimates of future earnings and sales.) In fact, the only value metrics by which Allstate looks a little lackluster are its ESG score and earnings surprise history, both a little below the market average. Sentiment Sentiment on Allstate has been improving over the last month, with a large increase in the Equity Starmine Summary Score to its current rating of 9.7/10. Allstate got a hefty settlement from PG&E last month, so the news environment looks good. The put/call ratio on Allstate is bullish, but not strongly bullish, at 0.69. (A put/call ratio under 1 is bullish; a put/call ratio over 1 is bearish.) Technicals Technicals are somewhat negative for now, but given the improvement in analyst ratings, I expect that Allstate will soon make a bullish trend line cross. For a swing trade, I am setting my profit target in the 105-106 range. I will go ahead and buy ahead of the trend line cross, but another way to play this would be to wait for a confirmed cross to place a buy.
NYSE:ALLLong
by ChristopherCarrollSmith
$CFG is going to rise todayEarnings intraday trading strategy signal. Citizens Financial Group, Inc. operates as the bank holding company for Citizens Bank, National Association that provides retail and commercial banking products and services. Today the company announced it had beat sales (1.75B, est. 1.68B) and EPS (0.55, est. 0.07) estimates. I suppose many traders will close their short positions today due to the good earnings report and potentially upside trend. So I hypothesize that $CFG price will be rising from the market open to market close. Due to strategy, the long buy can be from the market open price, stop-loss — - $1,05 per share take-profit — market close price. Do not view this idea as a recommendation for trading or investing. It is published only to introduce my own vision. Always do your own analysis before making deals. When you use any materials, do not rely on blind trust. You should remember that isolated deals do not give systematic profit, so trade/invest using a developed strategy. If you like my content, you can subscribe to the news and receive my fresh ideas. Thanks for being with me!
NYSE:CFGLong
by KozakHlib
MAXR big move coming soonHello, today I will talk about MAXR one of my favorite stocks since its space and who doesn't love space. Based on VPVR levels, support lines, and the slow down turn. We can suspect a big move likely to hit around next week on Wednesday unless we trade sideways . Support zones to buy are the following -9.98-9.85 -9.07 -and unlikely to hit before next Wednesday if we are bullish is 8.21 Why am I bullish? iIsee sideways consolidation since the inital dump of covid and hasn't been really moving much with the market, so we can suspect some catch up along with the United States reopening. I do suspect some mediocre earnings next round, but if they are smart increase in R&D during this crises like NNDM has done. TA -We are in a downtrend, but have been consolidating and creating higher lows with a double bottom around 9.07 -MACD is bullish, but is sideways showing uncertainty among weather to be bullish or bearish. -RSI is the same as MACD and is Neutral -Trading is a Sell on the hourly -Most bullish thing is we are above the 50ema on the hourly and if it holds we will see major bullish movement, so one week is a good timeframe to suspect the move I'll be bulish and have bought in at 10.15. I know I could play it smart and wait for my targets to hit, but we are already at a discount compared to our $15-$17 range and with the Space market expanding every month with Tesla and Virgin Galactic along with Blue Ocean; might be a good time to buy some discounted shares for a mid long term hold. I may buy some more shares if we go under 9.90
MLong
by nathanielx9
2
SPX - You Really Think $6 Trillion Can Save Us?Three simple reasons why markets are still broken and why I lean towards the much higher probability of another move down despite FED stimulus: 1) Garbage prospects for equity earnings - earnings were terrible a long time before COVID-19 hit and this is way beyond a virus now: -Earnings were terrible way before COVID-19 -Q4 2019 was the worst fall in EPS. growth since the 2008 Financial Crisis -Unless governments miraculously open up the entire economy overnight, we now have the Q1 2020 earnings season coming up - hmmm... 2) $6 trillion of FED stimulus is highly disproportionate to the approx $70 trillion of value lost/being eroded: -We'll start with more than $20 trillion of value that has been destroyed in global stocks -Adding to it losses in all other assets (real-estate, credit, fixed income, etc.) this number is at least double equity losses: so another $40 trillion -Adding to this: at least a $10 trillion global dollar shortage crisis (dollar shortage, forward dollars swaps and various other dollar liabilities) - Total value destruction = 20T equities + 40T all other asset classes + 10T dollar shortage problems = approximately 70T of totally capital markets value destruction. - You really think $6 trillion of FED stimulus and highly indebted governments can fix this tremendous mess? 3) The McClellan Oscillator has moved sharply from the most oversold levels to the most overbought levels
AMEX:SPYShort
by arigolden
11
Spotify currently in a channelSpotify has been in a channel for what looks like over a year. There are two lines of support and it has recently bounced off both of them. I expect it to rise slowly up past EMA-50 and hopefully reach the top of the channel. RSI is not too high, and MACD is giving a buy signal. Despite recent COVID-19 concerns, Spotify should be financially ok since they are on online service and, more importantly, people will likely be using it a lot more since everyone is at home. EPS is also coming up in May, and I fell confident that it'll be either met or beat. Most of the analyst recommendations that I found on Marketwatch also agree to either buy or hold SPOT.
NYSE:SPOTLong
by QuantumMaster
Low annual EPS could create optimal buying opportunityPPG Industries has a history of stable EPS growth (with some outliers such as the EPS during the FC in 2008); the Corona lockdown and the stop of production is very likely to affect the EPS of the company in 2020 and maybe its the consecutive year’s growth. Looking at the reduction of EPS during the Finanacial Crisis, two year’s (2008 and 2009) EPS were falling significantly by 35% and 37% respectively. Adopting the relatively pessimistic perspective that the companies current EPS are subject to the same decreases as they were in 2008, annual EPS would be expected to be 3.40 in 2020 and 2.14 in 2021. Therefore, given historical evidence that the company’s share price is not significantly affected by short-term reduction of earnings, a favourable entry price for this business is $3,4*20 = $68, and take profit price when future estimated EPS of $5.24 are plausible ($5.24*20=$104.8). Investment Idea Option 1 , Option 2 Entry price: $74 , $68 Take profit or hold: $96.2 , $104.8 Max expected holding period: 18 months , 24 months Profit: 30% , 55% I`ll buy the stock as soon as it crosses $68. Good luck!
NYSE:PPGLong
by PeterLang_7
A.O. Smith; awaiting Q1 EPS results to enter a long positionA.O. Smith corp. has a history of stable EPS growth; however, the Corona lockdown is likely to affect the EPS in 2020 and maybe the consecutive year’s expected growth. In FY 2009, the company traded at a P/E ratio of 13 in average. Taking a very pessimistic perspective, one could argue that the economy will experience a recession similar to the one in 2008, that the P/E ratio will fall as the future growth perspectives turn negative. At the same time yearly EPS fall to $1.7, which would justify the stock price falling to $1.7*13 = $22.1. Shortly after the recession as future prospects get better and the company is able to generate higher EPS, we could expect both annual EPS and P/E ratio to recover and the share price to bounce back to $2.6*19 = 49.4$. This is an extreme perspective and a more realistic movement of the share price could be: share price falling to $1.5*19 = $28.5 (within April 2020) and bouncing back to $2.23*19 = 42,3 $ by the end of 2021. Buying idea Option 1 Option 2 Entry price $28.5 $22.5 Take profit $42.75 $49.5 Max expected holding period 18-months 18-months Profit 50% 220% I`ll buy the stock as soon as it hits $28.5. Good luck!
NYSE:AOSLong
by PeterLang_7
GWW; awaiting right moment to enter long-term positionGWW was trading at an average P/E ratio of 20-21 between in the last three years. Extremely high EPS of $15.46 in 2019 were the reason for a relatively low P/E ratio (around 19). Now, it is dangerous to determine the forward-looking P/E using the EPS of the FY 2019. Rather, should be estimated by how much the lockdown will influence the EPS of the FY 2020. Additionally, GWW is likely to recover fast because of its industry. For this reason, I expect EPS to recover fully to its upwards trend in 2021. Especially Q2’s earnings will be reduced since the lockdown forces production and GWW’s clients to shut down its activity. I expect annual EPS of 2020 to be lower than $10. If this is reflected in the share price and the P/E ratio remains on average the same as it was over the last three years, the share price could easily fall to 20*$10=$200. In a pessimistic scenario, EPS 2020 could reach lower levels such as $7, which could justify a momentary share price of 20*$7=$140. I believe that both scenarios are equally likely and that GWW will soon recover after the Corona lockdown and the annual EPS will bounce back to pre-corona levels and growth. Expecting the EPS to rise to 13 by FY 2022, the stock price is likely to reach levels around 13*$20=$260 by the end of 2021. Trading idea Entry price $173.3 Take profit (or hold 😉) $260 Max expected holding period 18 months Profit 50% I`ll buy the stock as soon as it hits $173.3. Good luck!
NYSE:GWWLong
by PeterLang_7
AMD hit our low target, next $40?As I said before I would love to open a postion in AMD, but I'm never comfortable in doing puts, yet AMD doesn't look great. Our last TA, which will be linked, has came out with some side ways movement and breaking our low trading range. Whats next for AMD? Well I read that earnings will drop by 12% in tech stocks due to the corona virus. Not sure if that goes for all, but what can chart tell us? If AMD droped 12% it would be just mid $41, yet whats there? Well nothing just going back to Nov 19-Dec 19 it was the top of what looks like a cup and handle formation and this would most likely be broken hitting the trading range of $40-$39 rougly. There is story coming out that the corona is breaking in California nad has hit Italy, so it just doesn't look good for AMD sales. Maybe buying a 10-20% between $40-$46 cause you never know.
NASDAQ:AMDShort
by nathanielx9
Spce is going for a crash landing?Our last TA on SPCE was pretty acurate we got a bounce just above our target with just .20cents off. I'm always a follower of trading range lines or highs lows in predicting pull backs. As of now at closing we are at $26.50 with the low of $25.71, which is marketed on this graph since aftermarket price movement isn't shown due to low volume, yet we all know SPCE has bubblish volume. As of now we can hold off on SPCE until we get bullish movement, but what caused this drop? 1. SPCE was in a microbubble with Bullshit expectations. 2. The EPS was off by a Shit load and anyone could have seen this coming, besides the people getting behind the hype. 3. Corona ingeneral has had affect on the market after it spread to Europe and recently theres a case in California. What's next for SPCE? well its the market bubble graph and as of now we could say we are in Anxiety since the bounce was Complacency. We could honestly see a sub $10 SPCE with we knowing SPCE won't beable to make any money even raising the price will just hurt the company itself. They need development like SpaceX with inovation on its Rockets. SpaceX has reuseable rockets. Next target is our trading range of $19.06-$24.25. You can see past TA which hasn't change
NYSE:SPCEShort
by nathanielx9
CDW CORP (CDW) We are testing the William O´neils CANSLIM METHOD. We have tested some stocks sugetions Found in the MARKETSMITH stock suscription. Test have been made with small amounts. This Is one of the best performing stocks of 2019. we are expecting it to be on the top market leaders. EPS RATING 99 Group RS A RS RATING A C.R, 99 RS 95 this stock has made a strong flat base rectangular pattern from 162 to 179.. I will set up a stop buying order at a price of 180.66 wating for a price break.
NASDAQ:CDWLong
by fonsecadr
MICRO FOCUS INTERNATIONAL PLC SPON ADRWe are testing the William O´neils CANSLIM METHOD. We have tested some stocks sugetions Found in the MARKETSMITH stock suscription. Test have been made with small amounts. This Is one of the best performing stocks of 2019. we are expecting it to be on the top market leaders. EPS RATING 99 Group RS A RS RATING A C.R, 99 RS 95 this stock has made a strong flat CUP AND A HANDLE from 22 to 27.. I will set up a stop buying order at a price of 180.66 wating for a price break.
MLong
by fonsecadr
1
SPLK still a good buyFundamentals 117.45. NO DIVIDEND Based in San Francisco, CA Full time Employees: 3,200 Provides software solutions that enable organizations to gain real time operational intelligence in the U.S. and internationally. Splunk Enterprise Security addresses security threats and information. Splunk User Behavior Analytics detects cyber-attacks and insider threats. Jim Cramer, The Street, rates this stock a D SELL. Cramer is an inverse index. Whatever he says, do the opposite. STOXLINE also rates this stock as a SELL with 3 Blue Stars and red arrows pointing downward. Nevertheless their 6-month price target for the stock is 151.84. EPS: -2.370 P/E: -49.56 Technicals The technicals here are very strong. There was a sharp correction in June which turned out to be an inverse head and shoulders pattern which gapped to the upside, which is a strong bull indicator. Note that SPLK has recently rejected the lower bound of the KRI, and is facing some resistance about the central moving average of this indicator. The long-term momentum (blue line) is still strong, thought the short term momentum (purple line) has let up. This indicates optimal conditions for entering a position.
SLong
by quantguy
2