How to Identify Undervalued Stocks Using EPS and PER

When analyzing stocks, two key indicators often come into play: EPS (Earnings Per Share) and PER (Price-to-Earnings Ratio). These metrics help investors determine whether a stock is undervalued or overvalued, guiding better investment decisions.

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1. What is EPS (Earnings Per Share)?

EPS represents the net profit a company earns per share of its stock. A higher EPS generally indicates better profitability.

📌 Formula:

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💡 Why is EPS important?

• Shows how profitable a company is per share.
• Helps compare companies within the same industry.
• A growing EPS suggests a company is increasing its earnings potential.

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2. What is PER (Price-to-Earnings Ratio)?

PER measures how much investors are willing to pay for a company’s earnings. A lower PER may indicate an undervalued stock, while a higher PER suggests the stock might be expensive.

📌 Formula:

💡 Why does PER matter?

• A low PER might indicate an undervalued stock.
• A high PER suggests high investor expectations, but it could also mean overvaluation.
• Comparing a company’s PER with industry averages provides insights into its valuation.

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3. Case Study: JW Pharmaceutical

Let’s apply these concepts to JW Pharmaceutical

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📊 Key Observations:

• The company’s EPS has been increasing, indicating strong earnings growth.
• The average PER in the pharmaceutical industry typically ranges from 10 to 15.
• Given positive AI-related news in the sector, we apply a PER of 20 for valuation.

📌 Stock Price Estimation:

💡 As of August 14, 2023, JW Pharmaceutical’s closing price was 44,650 KRW, suggesting further potential for growth.

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4. Final Thoughts

EPS and PER are essential tools for identifying undervalued stocks, but they should not be used in isolation. Always consider:
✔ Industry trends
✔ Company fundamentals
✔ Market conditions

By combining these factors, you can make more informed investment decisions! 🚀