Uh, is there anything important to understand about stock selection? Most people talk about EPS very often, but in reality, many don't really understand how useful it actually is. I see people asking whether high EPS is good or if increasing EPS Growth is important. Let’s discuss what EPS really is and how to use it effectively to choose stocks.

EPS stands for Earnings Per Share, or profit per share. Simply put, it’s calculated by dividing a company's net profit by the number of shares outstanding. Why should we look at this? Because it shows how much profit each share generates. If two companies have the same profit but one has fewer shares outstanding, its EPS will be higher. That’s the point investors should pay attention to.

The formula is straightforward: EPS equals net profit divided by the number of paid-up shares. For example, Company AA earns 1 million baht in profit but has only 1,000 shares outstanding, so its EPS is 1,000 baht per share. Meanwhile, Company BB also earns 1 million baht but has 2,000 shares outstanding, so its EPS is only 500 baht per share. Looking at this, Company AA seems better, right?

Besides looking at just the EPS value, I often check EPS Growth as well—that is, the growth of earnings per share from year to year. If EPS Growth is negative or increasing slowly, it might be a sign that the company isn’t growing well. The calculation for EPS Growth is (EPS this year minus EPS last year) divided by EPS last year, then multiplied by 100 to get a percentage. For example, if EPS increases from 8 baht to 12 baht, the EPS Growth is 50%, which is a very good sign.

So, what do investors do with EPS? First, compare the EPS of the company you’re interested in with other companies in the same industry. Or look at the trend of EPS over several years to see if it’s increasing or decreasing. This helps us determine whether the company is truly growing.

Second, you should look at the PE Ratio, which is the current stock price divided by EPS. A low PE Ratio might mean the stock is undervalued. For example, if the stock price is 100 baht and EPS is 10 baht, the PE Ratio is 10, meaning it would take 10 years to recover the investment. If this number is below the market average, it could be a good opportunity.

There are other indicators people often use, such as Dividend Payout Ratio, which shows what percentage of profit the company pays out as dividends, or Basic EPS, Diluted EPS, and Adjusted EPS, which differ in how they are calculated.

But most importantly, don’t rely solely on EPS. A company can artificially boost EPS by buying back its own shares, which reduces the number of shares outstanding, even if actual profit doesn’t increase. So, it’s essential to look at net profit figures as well and compare them with EPS Growth to see if earnings per share are genuinely increasing.

Another thing is, EPS only provides historical data. It doesn’t tell us whether the company will be profitable in the future. We need to consider the business environment, risks, and market trends too.

I think EPS is a useful screening tool, but it should be used together with other indicators. Check net profit, EPS Growth to see if it’s steadily increasing, look at the PE Ratio to assess if the stock price is reasonable, and compare with other companies in the industry. Doing this will give you a better chance of selecting good stocks.