Adjusted EPS adjusts EPS for non-recurring items. For many companies, Adjusted EPS is the most important metric that drives stock price.
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
It is usually the case that stock price will increase when the company beat the expectations, but I also have seen price goes when when quarter earning beats the expectation significantly. For example, Netflix beat the the earning by 15 or 20% last quarter, but it’s price dropped heavily right after. Does this mean the exceed earnings is not high enough for investor to pay at price for that moment? Maybe investors were looking for a 30/40% higher expectation?
Excellent question. For many companies, usually those mature and profitable businesses, the primary driver of value is profit. Naturally, the punchline metric that investors focus on is EPS. As a result, for most companies in the S&P 500, the focus is on whether EPS missed or beat expectations. That’s why missing or beating EPS expectations could cause significant changes in stock price. However, EPS by itself does not paint the full picture. We also care about why EPS beat or missed expectations. What’s driving the EPS beat / miss? For instance, what if EPS beat expectation, but the beat was… Read more »
A very well-explained answer! Thank you so much!
Hi Guys! Awesome job with the course. i’m really enjoying it.
Just wanted to check that when you guys were calculating the adjusted EPS in the example, you said $1.120/100 = 1.12$ but it actually is $11.2.
Thanks for pointing this out Humberto! You are correct. We’ll get this fixed the next time around when we revise all the courses.
Super happy to hear that you’re enjoying the courses so far!
Hi,
When i have been looking at stocks financials i have noticed that sometimes the reported EPS and normalised are different including when i calculate it. Why is this the case?
Also would you count interest as non recurring payment?
Thanks
Hi Luke, Interest is technically a recurring expense (because a company will continue to bear interest for as long as they owe debt). Public companies have a whole bunch of non-recurring extraordinary expenses embedded in different lines within the Income Statement. As a result, they often provide a “Reconciliation” or “Bridge” from GAAP EPS to Non-GAAP (“Normalized” or “Adjusted”) EPS. In these reconciliations, they’ll break out the smaller items that are embedded within lines like R&D, SG&A, COGS. As a result, you can’t get to their normalized EPS calculating it on your own without that additional set of information breaking… Read more »