Explaining Earnings Yield

 Explaining Earnings Yield

 

Earnings yield (EY) is a mathematical calculation which is used to evaluate a stock. You must find the earnings per share (EPS) and divide this by the actual stock price. When you see the marijuana news yield it is usually based on the trailing 12-month earnings. If the EPS during the final 4 quarters is $4 and the exact stock price just happens to be $40, the earnings yield is 10%. The famous price to earnings ratio (P/E) is the mutual brother of the yield for earnings. We obtain 10% in this scenario by dividing $4 into $40. The investor wants to see a high earnings yield, compared to companies in its own industry. It does not behoove you to compare TransOcean to Starbucks, two companies completely unrelated. Therefore, low yield means the company is typically overvalued which means it is expensive to buy. In other words, carry on or wait another day to buy, put the company on your watch list if you may.

Many professionals or a few actually, utilize the yield rather than the P/E. This is alarming or noteworthy since the P/E ratio in the investing world is like the earned run average for a pitcher in baseball or the points per game statistic in basketball, meaning it is pivotal. Apparently, some of these professionals believe this number is more transparent. Furthermore, since the earnings yield is seen as a percentage, it can be contrasted to the yield on other types of investments like bonds. However, be weary of the earnings yield. A stock’s amount indicates the return for every period in the future, not just for that last year. Even more, growth stocks that look ripe for the picking may have a low earnings yield but still may not be overpriced.

The yield links a company’s fiscal numbers to the share stock price. The EY

 

 

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