Earnings Per Share

Earnings per share (EPS) looks at the wealth that is being created on each share of stock. It is a somewhat useful predictor of future earnings. The EPS will either wind up in the stockholders hands directly as a dividend, or it will be retained and used to enhance the wealth creation capabilities of the company. Therefore, one school of thought says that a stock price should reflect the present value of a future EPS stream, and if we can somehow predict that stream we can predict the stock price.