Earnings Per Share
A company’s net profit divided by its number of outstanding shares.
Also called: eps · earnings per share
Written by Javier Sánchez Ros
In plain language
EPS reduces total profit to a per-share figure, which makes it comparable across companies of different sizes and across time.
Diluted EPS accounts for options and convertible securities that could become shares. It is the more conservative and generally more useful number.
EPS is an accounting output and can be influenced by buybacks, one-time items and accounting choices, so the trend matters more than any single quarter.
The formula
Earnings Per Share
Net Income ÷ Shares Outstanding
Worked through
EPS of $1.42 against a consensus of $1.38
- Consensus estimate
- $1.38
- Reported
- $1.42
- Surprise
- +2.9%
- What moves the stock
- the surprise, not the $1.42
The number that matters is the gap between reported and expected, not the reported figure itself. A company earning $1.42 against a $1.38 estimate is a positive surprise; the identical $1.42 against a $1.55 estimate is a miss, and the stock behaves accordingly.
That is the whole reason earnings produce such violent single-day moves. The price already reflects the estimate, so only the difference is new information — and the difference arrives all at once, outside market hours, when nobody can trade on it.
Guidance frequently matters more than the number. A company can beat on EPS and fall 15% because it cut its outlook for the coming year, which is the market repricing every future quarter rather than reacting to the one just reported.
For sizing, the consequence is simple and unwelcome: across an earnings release, your stop is not a risk control. The position size is, because it is the only thing that still applies when the stock reopens past the stop.
Why it matters
EPS surprises against expectations are among the largest single-day movers in equities, and are a primary source of gap risk.
Common mistakes
- Reacting to headline EPS without comparing it to what was expected.
- Ignoring share count changes that flatter per-share figures.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A company’s share price divided by its earnings per share.
A company’s scheduled quarterly disclosure of financial results.
A jump between one period’s close and the next period’s open with no trading in between.
A unit of ownership in a company.
The total market value of a company’s shares — share price times shares outstanding.