How to use EPS ranking?

What is EPS growth?

The earnings per share (EPS) number that you want to know is calculated by dividing a company’s total Nett profits by the number of total outstanding shares. The percentage change in EPS in comparison with the company’s previous results is one of the most important gauges in stock selection. The greater the percentage increase, the better. This is known as EPS growth.

What is EPS Ranking?

Strong earnings growth is required for a stock’s success and has a greatest impact on its future price movements. The first most important component of the BTT’s EPS Rankings is the Earnings Per Share (EPS) ranking. EPS ranking calculates the growth and stability of each company’s earnings over the recent years and the immediate quarters, giving importance to the recent TTM years and quarters. The result is compared with all other stocks that are tracked by the BTT Index and is ranked on a scale from 1 to 100, with 100 being the best.

Example: An EPS ranking of 80 means that a company’s earnings over the short and long term are in the top 20% of the roughly 1000 stocks being tracked.

This one number gives you the relative earnings performance of the companies and the future prospects for their stocks. With this you can compare the audited results of each company between others. For example you can compare the earnings growth of Infosys with ITC, Reliance, SBI or ICICI Bank.

Since earnings strength and growth are the most basic measures of a company’s success, the EPS ranking is invaluable for separating the true leaders from the poorly managed and underperforming companies. This is most essential in today’s global competition.

What are the stocks that are tracked?

Stocks belonging to both the NSE and BSE 500 list along with those that have Mutual Fund participation are taken for tracking in our BTT index. At present the tracking index consists of 868 stocks. Almost all the stocks confer to minimum liquidity and financial parameters set by our Index forming committee.

How can we use EPS rankings?

The EPS rankings can be used in both as standalone as well as in combination with other ranking to find the strongest stock to trade.

As standalone

Once a stock moves into the 80-100 bands of rankings, it enters the league of strong stocks by earnings. Start placing the stock on your watch list and monitor its movements. Most of the times, these stocks are in a bullish trajectory. Wait for the stock to pull back & move below its 13 and 26 EMA’s. It can either form a bearish trend or go non –trending. In case of a bearish trend the first close above 26 EMA is a trade signal to go long. Similarly when the stock develops a non-trend, wait for the nearest resistance to be breached for a long trade entry. Most of the times, these trades are multi baggers and move up very fast. But still we strongly recommend stop loss for every trade. Use 8% stop loss rule with discipline that is you exit your position if the stock moves below 8% from your entry.

In combination with other rankings.

When a stock has both its EPS as well as PRS rankings above 80, this stock enters into the super strong performers list. Wait for the stock to form a base on its existing move and trade the resistance break. Again ensure that the stop is in place with the 8% rule.