A one commodity mining company may have volitile EPS due to fluctuating commodity prices. Plus mining companies can have production problems such as an area of low grade ore or cave ins, etc.
Many companies have negative EPS because they may be mining exploration or medical research companies.
They are not expected to earn cashflow but they are developing value in terms of their assets. For example, an effective luekemia medicine or 500 million tonnes of iron ore is economically valuable.
For example, most of my investments earn negative EPS.
EPS is important when investing in cash flow earning stocks.
EPS is also important in setting long term price targets.
For example, an exploration company may be planning to develop a mine. They have X number of shares on issue, will need to raise Y in capital, forecast to produce Z tonnes of metal, forecast to earn P amount of profit.
From this you can work out future EPS to value the stock.
For example, company X is now 22 cents a share. They issue a feasiblity study which states they will be producing in 3 years time. The EPS forecast is 16 cents. In three years time, on a PE ratio of 10, the share price will be $1.60.
Gain over 3 years is 200% a year.
This is simple F.A.
The company I used as an example is GBE.
Find their scoping study. Try to see how I have come to my analysis.
