Investors should know: What is EPS and why is it an important indicator in stock selection

What is EPS used for: Before understanding it in depth

If you are just starting to analyze stocks, the first question should be “Why EPS?”

This is where EPS (Earnings Per Share) comes in to help. It tells you how much profit per dollar of revenue translates into profit per share.

Investors use EPS to:

• Assess whether the stock is overvalued or undervalued compared to other companies in the same industry
• Track the company’s growth year over year
• Calculate the PE ratio to determine how many years it takes to recover the investment
• Make investment decisions by combining EPS data with other indicators

What is Earnings Per Share (EPS) really

EPS stands for Earnings Per Share, or in Thai, “กำไรต่อหุ้น”

It is a basic financial ratio that shows the net profit (Net Profit) of the company divided by the number of outstanding shares (Outstanding Shares)

Simply put: If company ABC makes a profit of 1 million baht and issues 100,000 shares, each share’s profit share is 10 baht. That is the EPS of ABC.

How to correctly calculate EPS

Basic formula:

EPS = Net Profit / Average number of shares outstanding during the year

But if you want to find the number of shares yourself:

Number of shares = Market Cap (Market Cap) / Current share price

Example calculation of EPS

Suppose:

• PTT has a net profit of 91,174.86 million baht in 2022
• It has 28,562.9963909774 million shares outstanding

Calculating: EPS = 91,174.86 ÷ 28,562.9963909774 = 3.19 baht

Meaning: Each PTT shareholder gets a profit share of approximately 3.19 baht per share.

View EPS values on the SET website

If you don’t want to calculate manually, you can visit the Stock Exchange of Thailand website:

1. Go to the SET website
2. Search for the stock ticker of interest
3. Scroll to the “Key Financials” tab → view EPS

Why might one company’s EPS be high and another’s low

For example, suppose companies A and B both earn 1,000,000 baht:

• Company A: issues 1,000 shares → EPS = 1,000 baht
• Company B: issues 2,000 shares → EPS = 500 baht

Why is A higher? Because fewer shares means the profit is spread over fewer units.

And in cases where the number of shares is the same but profits differ:

• Company C: profit 500,000 baht, 500 shares → EPS = 1,000 baht
• Company D: profit 1,000,000 baht, 1,000 shares → EPS = 1,000 baht

Both have the same EPS, but D makes more profit overall.

What does EPS help to calculate

1. PE Ratio (Price-to-Earnings Ratio)

PE Ratio = Share price / EPS

It tells you how many times the profit you pay for the stock.

Example: Share price 100 baht, EPS = 10 baht → PE Ratio = 10 times (You pay 10 years of earnings to recover your investment)

A low PE ratio ≠ always good. It must be compared with PE ratios of stocks in the same sector.

2. EPS Growth (EPS growth rate)

EPS Growth = (EPS this year - EPS last year) / EPS last year × 100%

Indicates how much profit per share has increased or decreased year over year.

Example: EPS in 2022 = 12 baht, EPS in 2021 = 8 baht → Growth = (12 - 8) / 8 × 100 = 50% increase

Positive EPS growth = company is growing, negative growth = company is contracting

( 3. Dividend Payout Ratio

Dividend Payout Ratio = (Dividend per share / EPS) × 100%

Shows what proportion of profit is paid out as dividends to shareholders.

Example: Dividend 10,000,000 baht, profit 50,000,000 baht → Payout Ratio = 20% )Company distributes 20% of profit as dividends, retains 80% for expansion(

Basic EPS vs Diluted EPS vs Adjusted EPS: What’s the difference

) Basic EPS ###Basic@

The simple EPS figure obtained from: Net profit ÷ number of shares outstanding

Used when the company has no potential dilutive securities (warrants, options)

( Diluted EPS )Diluted@

Considers potential shares such as warrants, stock options, convertible bonds

If all options are exercised, the number of shares increases → EPS decreases

Diluted EPS ≤ Basic EPS always ###lower warning(

) Adjusted EPS (Adjusted@

Adjusts EPS by removing temporary volatility, such as:

• Gains from sale of assets
• Restructuring costs
• Impact of tax policy changes

Used to better reflect “normal operating profit”

Limitations: Why EPS is not the only indicator

) 1. EPS can be manipulated###

Companies can buy back shares (Stock Buyback) to reduce outstanding shares → EPS increases without real profit growth

Example: Company ABC earns 100 million baht profit unchanged but buys back half of its shares → EPS doubles, even without actual growth

( 2. Does not reflect risk

High EPS ≠ safe investment

If a company has high debt and poor cash flow, investment remains risky

) 3. Past data, not future

EPS announced is for the past year; it can change with market conditions

4. Must compare, not just look at one figure

Is PTT’s EPS of 3.19 baht good? It must be compared with other oil companies’ EPS or PTT’s own EPS from the previous year

What makes a good EPS

There is no universal “good” EPS; it must be considered in context:

• Compared to itself: Is this year’s EPS higher than last year’s? → Growth
• Compared to peers: Does A’s EPS surpass B’s? → Higher efficiency
• Compared to economic/political environment: If the industry is in decline, your company’s EPS might just be maintaining profits

A good EPS is one that continues to grow, with good cash flow and controlled debt levels.

How to use EPS in investment decisions

( Step 1: Compare EPS

Study the EPS of the target company against competitors in the industry

) Step 2: Look at trends

Review EPS over the past 3-5 years to see the trajectory: rising, falling, or stable ###up, down, or flat(

) Step 3: Find reasons for changes

If EPS declines:

• Profit decreased (operational issues)?
• Or shares increased due to new fundraising ###new capital raising###?
• Or one-time extraordinary expenses?

Step 4: Combine with other indicators

Use EPS together with PE ratio, Debt-to-Equity, Cash flow, ROA, ROE

Do not rely solely on EPS for decision-making

Summary: EPS is a tool, not the answer

Earnings Per Share ###EPS### is a basic financial indicator that helps investors assess how well a company is performing per share invested.

But EPS alone is not enough; you should also look at:

• PE ratio to understand valuation
• EPS growth to see if growth is real or due to buybacks
• Cash flow to verify actual profitability
• Debt ratio to ensure the company isn’t overly leveraged

Smart investors use EPS as a starting point for analysis, but not the sole basis. Good investment decisions require a comprehensive view and multiple data points.