Lux Investing
Which is more important sales growth or EPS growth?
Does it matter if a company has a low sales growth, but a very high increasing earnings per share growth? which is more important in the world of investing?
Public Comments
- I would put the priority on sales growth. Accountants can find all kinds of tricks to hide/capitalize/defer expenses and make earnings look better than they are. Even if everybody is truthful, earnings growth is not sustainable without sales growth.
- Sales growth is a wonderful indication of improved business, but along with things like PE (price to earnings ratio), it doesn't stand alone. Earnings per share (EPS) doesn't really stand by itself either. Suppose a company had good sales growth but the earnings per share, while still a positive value, dropped compared to previous quarter/year or whatever benchmark of time you want to use. Consider what the margin is when looking at sales growth numbers. If a company (like one in my personal portfolio) is increasing sales and increasing margin, then EPS naturally follows unless something exceptional happens. Similarly, a company could have good sales growth but (here is an example of an exceptional event) sold the business branch or subsidiary that contributed to those numbers. If the subsidiary sold was high in sales and poor in profits, then the sales growth will appear to decline but earnings rise. So you have to keep looking at what the business does, has done, and is expected to do.
