Earnings Per Share Growth

The percentage increase in a company's earnings per share over a specified period, typically year-over-year.

Earnings Per Share (EPS) Growth measures the rate at which a company is increasing its profitability on a per-share basis over a specific period, typically year-over-year or quarter-over-quarter. It is a critical metric for growth investors because long-term stock price appreciation is highly correlated with a company's ability to expand its bottom-line earnings. To calculate EPS growth, you compare the EPS of the current period against the EPS of a prior period. While the underlying net income of a business is the primary driver of this growth, companies can also boost their EPS growth by reducing their total outstanding share count through stock buybacks, or by improving their operating margins through cost-cutting measures. Investors analyze EPS growth to evaluate a company's financial health and competitive positioning. High EPS growth rates often justify higher valuation multiples, such as elevated price-to-earnings ratios. However, investors should look closely at how the growth was achieved; EPS growth driven solely by share buybacks or one-time tax benefits is generally less sustainable than growth driven by organic revenue expansion and operational efficiency.

Company A reported an EPS of $2.00 last year. This year, due to strong sales and a share buyback program, the company reports an EPS of $2.50. The annual EPS growth rate is calculated as: (($2.50 - $2.00) / $2.00) 100 = 25%.