Earnings Yield
Candlefocus EditorEarnings yield is calculated by dividing the company’s earnings per share (EPS) over the past twelve months (LTM) by the current market price per share. It is the inverse or opposite of the price-to-earnings (P/E) ratio, which measures the price of a security relative to its earnings. An earnings yield of 4%, for example, is equivalent to a P/E ratio of 25 (1/0.04 = 25).
The higher the earnings yield of a company, the more attractive the stock may be to investors seeking value. A high earnings yield indicates that the company has the potential to generate higher returns on investment. Conversely, a low earnings yield suggests that the company’s stock is overvalued and may have limited upside potential.
It is important for investors to take into account a company’s growth prospects when analyzing its earnings yield. A company’s earnings yield is an indication of the potential return or value of its stock. Stocks of companies with promising growth prospects could have a low earnings yield, but still be attractive investments.
In summary, earnings yield is an important consideration when evaluating a stock’s potential. It is a measure of a company’s potential to generate returns on investment. Analyzing a company’s earnings yield can help investors identify undervalued stocks and determine whether or not a stock is worth investing in. It is also important to consider a company’s growth prospects in addition to its earnings yield.