EPS

Earnings Per Share (EPS) measures the portion of a company's profit allocated to each outstanding share of common stock. It is calculated by dividing net income (after deducting preference dividends) by the weighted average number of shares outstanding during the period. EPS is arguably the single most important fundamental metric for equity valuation.

Basic EPS uses the actual number of shares outstanding: if Infosys reports net profit of Rs 24,000 crore with 415 crore shares outstanding, its EPS is Rs 57.83. Diluted EPS accounts for potential dilution from stock options, convertible bonds, and warrants, giving a more conservative view — typically 1-3% lower than basic EPS for most Indian companies.

EPS drives the Price-to-Earnings (P/E) ratio, the most widely used valuation metric in Indian markets. If Infosys trades at Rs 1,600 with an EPS of Rs 58, its P/E ratio is 27.6x. Comparing this to the industry average P/E (IT sector typically trades at 20-30x) and the stock's own historical P/E range helps determine whether the stock is overvalued, fairly valued, or undervalued.

EPS growth rate is more important than absolute EPS for investment decisions. A company growing EPS at 20% annually (like many Indian banks during credit expansion cycles) will see its stock price appreciate faster than one with flat EPS, even if the latter has higher absolute EPS. The PEG ratio (P/E divided by EPS growth rate) normalises valuation for growth — a PEG below 1.0 suggests the stock may be undervalued relative to its growth.

In India, quarterly EPS (derived from quarterly results declared to exchanges within 45 days of quarter-end) drives significant stock price movements. An "EPS beat" (actual EPS exceeding analyst consensus estimates) by even 5-10% can trigger a 3-8% stock price jump. Conversely, an "EPS miss" can cause sharp declines. This is why earnings season (January, April, July, October) is the most volatile period for individual stocks. Trailing twelve-month (TTM) EPS is used for trailing P/E, while forward EPS estimates from analysts are used for forward P/E — the more relevant metric for investment decisions.