PLC’s have a legal obligation to regularly publish their financial performance data. This presents an investment opportunity for investors, as the publishing of this data can cause the value of a stock to increase, or decrease massively. EPS (earnings per share) is calculated by dividing a firm’s total earnings by the number of issued shares.
Analysts make predictions regarding the financial performance of a firm e.g. an analyst may predict the Tesla Motors Inc will have an EPS (earnings per share) of $2.52. If the firm performs better the expected/above the general market consensus, demand for their stock increases as investors now have more incentive to purchase that stock (they expect the high EPS to continue.) This increase in demand forces the share price up.
Recent Example – Amazon’s Stock Falls Due to Worse Than Expected EPS
American retail giant, Amazon, recently saw its stock price fall by 4.23% after it was revealed that there EPS was lower than expected. It was estimated that Amazon would report an EPS of $0.78, but the actual figure was only $0.52. This data is for the third quarter (Q3) of 2016.
The firm’s revenue was similar to analyst’s predictions, but the corporation’s costs high costs dragged down their EPS.