Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.
KEYPOINTS
Discover growth potential: Discover how to identify companies primed for success by looking at their shares outstanding & EPS.
Bigger slice, bigger profit: Learn why a decrease in shares outstanding combined with rising EPS can be a recipe for shareholder delight.
See beyond buybacks: Understand the difference between share repurchases and total shares outstanding to make informed investment decisions.
Hey everyone, welcome back to our "Complete Guide to Create a Winning Stock Portfolio" series.
Today, we're diving into a strategy for identifying companies with promising near-to-medium-term growth potential.
We'll be focusing on two key metrics: decreasing shares outstanding and increasing EPS (earnings per share).
Why is this combination so attractive?
Imagine a company's profit is like a delicious pastry. Now, imagine cutting that pastry into fewer slices. Each slice, representing a share of ownership (EPS), becomes bigger! That's exactly what happens when a company's shares outstanding decrease while EPS increases.
But wait, there's more! It's important to understand the difference between share repurchases and total shares outstanding. Companies often use share repurchases (buying back their own stock) as a way to show confidence in their future. This can be a positive sign, but it doesn't always translate to a decrease in total shares outstanding.
Focus on the Bigger Picture: Total Shares Outstanding
For a clearer picture, we want to see a downward trend in the total number of shares outstanding. This signals that the company is actively managing its capital structure and potentially prioritizing shareholder value.
(Note): When Looking at EPS, Look for EPS Diluted figures, Not Basic
Diluted EPS takes into account all potential sources of share dilution, like stock options and convertible securities. This gives a more conservative and realistic view of the company's profitability per share, especially for established companies with a history of issuing new shares or offering stock options.
Giants Taking Bigger Bites: Share Repurchases for Mature Companies
Large, mature companies like Microsoft and Apple often use share buybacks to reduce their outstanding shares. This has a clear benefit: their diluted EPS and stock prices have seen significant increases.
This demonstrates how strategically executed share buybacks can truly enhance shareholder value.
A Word of Caution: Not All Rising Share Counts are Bad
Don't automatically dismiss companies with increasing shares outstanding. Look at the bigger picture. If a company like Axon shows strong and consistently improving fundamentals (revenue, cash flow, profit margins), the impact of a rising share count might be less significant. Additionally, a rising EPS can further mitigate concerns about increasing shares.
Where can you find these information?
Head over to financecharts.com
Under "Charts" > you can easily access both "Shares Outstanding" and "EPS Diluted" under "Others Charts."
By combining these two metrics, you can identify companies with the potential for healthy growth, setting your portfolio up for success! Remember, this is just one piece of the puzzle. Always conduct thorough research before making any investment decisions.
Stay tuned for the next chapter in our guide, where we'll delve into other key metrics to build a winning portfolio.
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