I'm back from a brief break, and today the stock market is taking yet again another negative hit. Last week was uninspired as well. But do we panic?? Do we rush to sell? Do we run in circles screaming?? No-- even in times like this it's best to sit tight and ride out the storm. This too shall pass.

So far we have looked at the following criteria to consider whether (or not) deciding to buy a stock:

Return on Equity (ROE)
Price-to-Earnings Ratio (P/E)
Price Earnings-to-Growth Ratio (PEG)

Now we're going to look at EPS, also known as Earnings Per Share. Yes, this is a throw back to the July 3rd post, because EPS is needed to calculated the price-to-earnings ratio (AKA the P/E). Give yourself a gold star if you remembered that!

The Basics of EPS and Trends

Here we're going to look at the EPS of an individual stock over time, rather than making a comparison between 2 stocks at a single point in time (like we did for Rupert's Rawhides and Marley's meaty treats). We are looking at the trend a stock is setting, and a positive trend is a beautiful thing!

Although it's summer, you can see the value of trend-setting from this fashionable photo taken last winter

EPS boils down to one simple concept. It looks at whether or not a company is profitable. This is how it is calculated:

net income over the past 4 quarters (minus any dividends)/outstanding shares

Remember, outstanding shares means the shares that have been sold.

If we look up Apple's EPS on Morningstar (and remember, this is FREE!!!), you can see the EPS over the past 10 years. To review how to get to that point on your computer,

Open the Morningstar webpage.
Find the little quote box in the heading just to the right of the red Morningstar name, and type in 'apple.' The first choice in the dropdown menu of choices should read AAPL Inc NASDAQ. Click on this option.
On this page, it's all about Apple. You can see the last price, the day change (up or down; today it's down -1.39%), the opening price for the day, the day range, etc. Scroll down the page until you reach Key Stats. Click on the little link titled "more..." just to the left.
On the new page under the heading Financials, look about 1/3 of the way down and you will see Earning Per Share in USD (US dollars).
Here's the link to Morningstar. This will open a new window.

Growth Rate

In the case of Apple, we can see a steady growth pattern, as illustrated here (because a visual is more exciting than a chart full of numbers on Morningstar):

EPS Growth of Apple stock over the past 10 years

You can see here is that Apple's EPS was $0.22 in 2005 and rose to $6.45 over ten years. That's all well and good, but the percentage increase from year-to-year is significant as well. Even though it looks like a small increase on the graph, just between 2005 and 2006 Apple's EPS increased an astounding 45%!!

Remember, EPS changes from year to year. As of the 2nd quarter of 2015, Apple's EPS is $8.66. That's roughly 34% higher than the 2014 3rd quarter value of $6.45. But it is actually not the final value, because we are not comparing the same quarter of this year to last year. We have to wait a few more months for that.

Fun Links For People Who Want to Learn More!!!

Are you interested in finding out Apple's overall growth rate over the past 10 years?? Of course you are!! It involves lots of math, which I KNOW everyone loves!! But in the interest of saving time, guess what-- there's yet another free place to get this information!! Yes, at a free website you can have your stock's growth rate calculated for you!! Now how cool is that? You simply plug in the beginning year's EPS (meaning the 1st year you want to measure from) in the 1st box, and then the ending year's EPS in the next box. Then you tell the calculator how many years you are measuring. Press the magic button and get your answer!

So for our Apple example, in 2005 the EPS was $0.22. That's the beginning EPS. The ending EPS in 2014 was $6.45. The span of years we are looking at is 10 years, so plug that number in. Now here's the fun part: press 'calculate growth rate.' And voila! The growth rate for Apple from 2005-2014 was 40.189%* on average per year. Amazing! Check out other stocks by clicking this link, Free-Online-Calculator (this opens a new window).

The growth rate allows you to compare stocks side by side over the same span of time. This can be helpful in your decision-making process.

You can find the EPS of any stock (and a lot of up-to-the moment info that's also free) from Google's business reports. This site gives you the day's big headlines, plus a quotes box where you can type in the name or ticker of the stock you are interested in examining. Check it out by checking this link, Google Financial (this also opens a new window).

A Few Final Words for Today's Entry...

You may have noticed a slight negative slip from 2012 to 2013. Even Apple's EPS can dip some years, but what we're looking at here is the overall trend of the curve, and it is safe to say it has been historically positive.

Most stocks' EPS ratios are not going to increase this rapidly. A solid growth stock can be expected to have its EPS increase 18% from the same point in time from the previous year, and hopefully more! But keeping up this rate involves selling a LOT of whatever a company makes or does, so that may not be completely realistic all the time. That's why we look at trends over a span of time. It doesn't have to be 10 years, but whatever time frame you decide to use.

Now here's the twist: a company's accountants can kinda, sorta, maybe tweak the numbers a bit in their favor to make the stock look more desirable. Many analysts suggest only using what is called the diluted EPS because it includes adjustments to the outstanding shares (such as shares that will be issued in the future and stock options offered to employees of the company). That will lower the earnings-per-share. t's more realistic than the basic EPS, and because of that is more noteworthy.

Where to find diluted EPS?? Once again, this information is posted on Morningstar. First find the stock you want to look up. Under the corporation's name is a bar with quote, chart, stock analysis, etc. Click on Financials. Here you'll see revenue, profit, operating income, and so on. About 3/4 down the page you can find earnings-per-share, both the basics and the diluted for the past 5 years.

That's why we always consider several concepts before purchasing any stock. Growth rates are not the be-all, end-all of picking stocks-- there are plenty of slow & steady stocks that are also a very important part of any investor's portfolio. Not everyone is a rock star, but just reliable workers who get the job done over the long haul. It never boils down to just one thing!