Earnings per share e p s

[Joshuatree]

Too good not to have its own thread, thanks P​ercy.

EPS growth twice PE is my goal.Don't get too many goals,but live in hope.
EPS growth above PE I am happy to hold.
EPS negative as per PGC I am very unhappy.
PE twice or three times growth I sell.

[percy]

So we buy a share on a PE of 10 and the eps growth is 15%.We are then proved right, and the market then is prepared to pay a PE of 15 expecting the growth rate to continue.
So a share trading at $1.00 has eps of 10cents,which rises to 15 cents eps.The market then pays a PE of 15 times eps [15 cents] taking the sp to $2.25.
Even if our growth rate was only 12% and the market still only paid a PE of 10 the sp would be $1.20.
The real fun is when the growth rate is higher than either we, or the market expected.
So watching for earnings upgrades becomes really important,and our speed in reacting to those upgrades,becomes very profitable. Even more so when the eps upgrade is higher than we expected.

[percy]

Too good not to have its own thread, thanks P​ercy.

EPS growth twice PE is my goal.Don't get too many goals,but live in hope.
EPS growth above PE I am happy to hold.
EPS negative as per PGC I am very unhappy.
PE twice or three times growth I sell.

EPS growth slightly lower than the PE.This happens when we have brought correctly and the market catches up with us.I usually continue to hold and will only look to sell should the PE get to over twice the eps growth rate.

[DarkHorse]

Have you sold down PGC Percy? Bell Potter forecasting higher EPS 2018 and 2019. (I'm in two minds myself atm)
Of course this raises the question of which figure we should use for EPS growth - some use one year historic, others three year historic; others one year forecast or three year forecast... which do you favour?

[percy]

Have you sold down PGC Percy? Bell Potter forecasting higher EPS 2018 and 2019. (I'm in two minds myself atm)
Of course this raises the question of which figure we should use for EPS growth - some use one year historic, others three year historic; others one year forecast or three year forecast... which do you favour?

No I have not sold any.
I like 2 or 3 years historic eps growth[the longer the better],but the forward eps growth rate is really what I base my buy,hold or sell decisions on. I put most weighting on one year forward,and less on two year forward ,and think three forward a bit of a guess by most analysts.
I think it is the Bell Potter research, which shows eps growth of over 15% for both 2018 and 2019 ,which is higher than the forward PE, was one of the reasons for keeping them.Other reasons are, I like the sector they are in.Plenty of growth in this sector.Although they have moved the majority of their business to consummerables, there is still about 20% in equipment.Equipment sales are very lumpy,ie you don't get many orders for 50 or 100 beds.They have also raised their stock levels expecting higher sales.So the full year will show whether they are on track or not.Another reason is, I have had experience in this sector with EBO.Although PGC is not of the same calibre,their multiples are undemanding.The results presentation although avoiding talking about eps,did make sense to me,ie looking for better stock turns,and having the capacity of doing further [small] bolt-on acquisitions, using their strong balance sheet, and cashflow.These offcourse would help eps growth.

[peat]

Of course this raises the question of which figure we should use for EPS growth - some use one year historic, others three year historic; others one year forecast or three year forecast... which do you favour?

Exactly
The 64$ question. Using one year is pretty pointless in my view,
and forward looking is always questionable.

[winner69]

No I have not sold any.
I like 2 or 3 years historic eps growth[the longer the better],but the forward eps growth rate is really what I base my buy,hold or sell decisions on. I put most weighting on one year forward,and less on two year forward ,and think three forward a bit of a guess by most analysts.
I think it is the Bell Potter research, which shows eps growth of over 15% for both 2018 and 2019 ,which is higher than the forward PE, was one of the reasons for keeping them.Other reasons are, I like the sector they are in.Plenty of growth in this sector.Although they have moved the majority of their business to consummerables, there is still about 20% in equipment.Equipment sales are very lumpy,ie you don't get many orders for 50 or 100 beds.They have also raised their stock levels expecting higher sales.So the full year will show whether they are on track or not.Another reason is, I have had experience in this sector with EBO.Although PGC is not of the same calibre,their multiples are undemanding.The results presentation although avoiding talking about eps,did make sense to me,ie looking for better stock turns,and having the capacity of doing further [small] bolt-on acquisitions, using their strong balance sheet, and cashflow.These offcourse would help eps growth.

Doubt whether you have seen many analyst forecasts with declining EPS numbers

But if they are forecasting 10% plus there is some margin of safety I suppose

[Joshuatree]

I vaguely remember that PGC let the mkt down before but cannot substantiate this. I would buy back in in the 60's perchance.

[Snoopy]

I like 2 or 3 years historic eps growth [the longer the better], but the forward eps growth rate is really what I base my buy,hold or sell decisions on. I put most weighting on one year forward,and less on two year forward ,and think three forward a bit of a guess by most analysts.

I look for 'eps' growth too, and look for those shares with a more or less indefinite upward 'eps' trend (there is the idealist in me coming out). In practice this means looking for five years of growth, although I do allow one setback in this five year trend record (very few businesses are perfect!). I would never invest on one indicator alone, even though looking at 'eps' is very useful indicator. There is one problem looking for longer 'eps' trend growth though, which is especially pertinent to the New Zealand market.

The problem is the NZ market is small. So if you are looking at a five year historical trend 'eps' uptrend, the chances are:

1/ the company will be about to meet a growth pain ceiling OR
2/ a cyclical downtrend in the operating market of that business will affect all listed shares in that sector.

I have, in practice, found that a five year 'eps' uptrend is just as likely to signal a 'portent to disaster' than to signal a 'confirmed market leader'.

These days I tend to accept that for most of the shares I hold, the operating market is cyclical. My objective in buying and selling is always to make my average dividend yield higher (in the particular share I am buying or selling). Of course, it is only being able to afford to buy shares in 'tranches' of three' (an initial investment followed by two separate subsequent investments) that allows me to mix and match purchases and sales do this. The result is I have no problem buying a share that is in 'eps' decline, provided I believe that the 'eps' will rebound again in the medium term. I also have no problem taking some shares off the top when 'eps' is on the up (because I know that it probably won't keep going up indefinitely).

This is a system that works pretty well for me, on NZX50 shares at least!

SNOOPY

[percy]

Good grief.
I find myself agreeing with Snoopy..
Yes I think there is a lot more than just basing an investment solely on eps growth.
Sector,balance sheet strength,cashflow,and management delivering on what they say they will do,must all be taken into account.I also use charts to help with timing.I do not buy any share that is in a downtrend useless it is HBL.lol