There are three numbers you are almost guaranteed to encounter when researching Nigerian stocks: EPS, P/E and market cap.
They look harmless. They are also capable of causing enormous confusion.
EPS: earnings per share
EPS tells you how much earnings are attributable to each share. If a company earns ₦100 billion and has 10 billion shares, a simplified EPS calculation is ₦10.
This gives you a per-share view of earnings.
Why EPS matters
Suppose total profit rises 20%, but the number of shares also rises significantly. The earnings available per share may not grow nearly as much.
That is why investors should watch EPS alongside total profit.
P/E: price to earnings
P/E compares a company's share price with its earnings per share. If a stock trades at ₦100 and EPS is ₦10, P/E is 10.
This can be interpreted loosely as the market paying 10 times current earnings.
Is a low P/E good?
Not necessarily. A stock at P/E 5 may be cheap, or the market may expect earnings to collapse. A stock at P/E 25 may be expensive, or investors may expect years of growth.
P/E works best when compared with history, competitors, industry norms, expected growth, profitability and balance-sheet strength.
Market capitalisation
Market cap answers: How much is the market valuing the entire company?
It is share price multiplied by shares outstanding. A ₦20 stock is not automatically cheaper than a ₦500 stock. The ₦20 company may have far more shares outstanding and a larger market value.
A simple way to remember
Think of a company as a pizza. Market cap is how much the whole pizza is worth. EPS is how much earnings belong to each slice. P/E is how much investors are willing to pay for each naira of earnings represented by the slice.
Do not use one metric alone
If someone says a stock has a P/E of 4, ask why. If someone says EPS is rising, ask why and whether it is sustainable.
Numbers do not make investment decisions. They give you questions to ask. That is how they become useful.