What is a reasonable EPS for a manufacturing firm?

Question

What is a reasonable earnings per share value for a manufacturing firm 3 years after IPO?

Answer 1

The Earnings Per Share (EPS) is a function of the net income and the number of outstanding shares of the company. Comparing EPS vs. EPS' of other companies are not meaningful because it really depends on the number of shares. What you should look at is the ratio of P/E or market price divided by earnings per share. This gives you a clue of whether your stock is over- or under-valued relative to other companies.

As an average, if you have a P/E over 15, then the stock is considered over valued. Try to buy a stock which has a P/E of less than 10.

Answer 2

That depends on several things, none of which very quantifiable. In general the price of a firm is government more by the future prospects for the earning of the firm than for other attributes. Firms for which investors see a very bright future trade at a very high price to current earnings. Firms for which investors see a bleak future trade at low price to current earning, provided that the firm is currently earning an income. Share prices are also impacted by alternate investments such as the interest rate on bonds.

A common indicator used to value firms is something called the PEG ratio. This is the pe ratio divided by the expected growth rate. Current wisdom is that if the PEG ratio is less than 1.0, the company is a good investment. If it is grater than 1.0, it is overvalued.

One would think that given that wisdom most stocks would trade within a narrow range of a PEG ratio of 1.0. But that is hardly the case. WTR currently has a PEG ratio of 3.0 for example. AEP a PEG ratio of 5.0.

On the flip side of the coin, FMT has a PEG ratio of 0.18 FAL 0.19 VNT 0.16.

Either expected earnings are a great deal in doubt or the markets do not know how to value companies.

So the bottom line is that there is no answer to your question.