Four local businesses made their investors? eyes perk up last week.
During the week of May 21 through 25, Foundation Coal, Sinclair Broadcasting, Legg Mason and Laureate Inc. each increased their current fiscal year earnings per share estimate.
Based in Hunt Valley, Sinclair, a broadcasting company, posted the largest jump in earnings per share, up 6 cents from 42 cents to 48 cents. Foundation reported a 2 cent increase, while both Laureate and Legg posted positive 1 cent changes.
Earnings per share (EPS) estimates are one of the most important tools that investors have to judge the workings of a company. An EPS estimate is derived from taking a company?s net income minus dividends on preferred stock, then dividing that number by the average outstanding shares, Financial Dictionary states. Both current and forward-looking EPSs are only estimates.
Through this derived EPS, investors are able to follow a company?s profitability. Typically, larger, wealthier companies have more outstanding shares, while smaller companies have fewer. If a large company would have a very small EPS, that would indicate it is struggling or is having issues with generating an appropriate amount of income relative to its size.
The EPS figure is also a major component of determining the price-to-earnings valuation ratio, Investopedia indicated. Many companies also post a diluted EPS, in which net income minus dividends on preferred stock is now divided by outstanding shares of stock plus convertible notes or warrants. Diluted EPS gives a more in-depth look at what the company has outstanding versus what it is making.
“Investors need to look at stocks like other consumer goods,” Kirk Kinder, a registered financial advisor with Picket Fence Financial in Bel Air. “Most investors chase hot stocks whose valuations are well beyond historical averages ? this is a huge mistake. This is what took place during the tech bubble of 2000 when investors bought stocks that had incredibly high price-to-earnings ratios.”
Foundation, Sinclair, Legg and Laureate are all part of The Examiner Top 10, a portfolio of some of the largest publicly traded companies in the Baltimore region.
