EPS and PE

This post, i will discuss about EPS (Earnings Per Share) and how EPS affect PE.

EPS are the earnings returned on the initial investment amount. The basic formula to get the EPS are:

EPS (Earnings Per Share) = Profit/Weighted Average Common Shares

PE are the formula to estimate the time (year) on getting back the capital. Investor need to know the share price and EPS to get the PE. The formula are:

PE = Price/Earnings Per Share (EPS)


Let's work out the formula and see the example below and you will know how PE help us on share invest.

Company ABC

January
Share Price = RM1.50
EPS = RM0.15
PE = RM1.50/RM0.45 = 3.33 (Years) ~ 3 years and 4 months.

June
Share Price = RM3.50 (Share price on ABC company has been increase for RM2.00)
EPS = RM0.15
PE = RM3.50/RM0.15 = 23.33 (Years) ~ 23 years and 4 months.

So, can you see the difference now? 3.33 years VS 23.33 Years. In the mean time, the lower amount of PE, the faster earn back you initial capital. But:

1: Why some share doesn't have PE in their annual report?
-If the company is facing financial problem. EPS less or equal 0.
-It's a new share in market. Insufficient information on EPS.

2: Why the amount of PE is a huge number
- From the example above (ABC Company - June), The share price are getting too high but the Earn Per Share (EPS) are too low or nothing changes.

So, for the new share investor. This is a simple formula to judge the "Safe" blue chip share.

Air Asia - Everyone Can Fly

Today I will do a case study on Air Asia Bhd (Symbol: 5099). This is an investment holding company that deals with air transport and hotel.

This stock closed at RM0.920 on Monday (21 July 2008). This stock has made a critical down trend since first quarter of year 2008.

The price is currently stable after the last 2nd week chart patterns: Long Lower Shadow. This is a bullish signal that might made the transition from down trend to uptrend in future weeks.

First Step to Stock Market

This post might help the new investor in Malaysia. The steps below are need to be done before you get involve in the share market in Bursa Malaysia.

1. Open a CDS Account
You may open a CDS Account in any Securities in Malaysia.

2. Charges on Open a CDS Account
Usually is RM 10.00

3. Where I Can Get The Related Information
Bursa Malaysia

4. Unit Per Share
In Malaysia, 100 unit is equal to 1 "LOT".
For example: If RM1.50/Share. 1 "LOT" is equal to RM1.5 x 100 = RM150