Earnings Yield
Earnings yield is the inverse of the P/E ratio, expressed as a percentage.
Earnings yield = EPS / share price × 100. It tells you the return you'd theoretically earn if the company paid out all its earnings. Comparing earnings yield to government bond yields gives a rough sense of whether equities are cheap or expensive relative to risk-free assets — the basis of the Fed Model.
An earnings yield of 5% on a stock and a 4% yield on a 10-year government bond suggests equities are modestly attractive; the same 5% earnings yield against a 6% bond yield suggests the reverse.
The metric works best for mature, predictable businesses. It's less useful for high-growth companies where today's earnings are a small fraction of expected future earnings.
Example
A stock with EPS of £3.00 trading at £50 has an earnings yield of 6%.
Further Reading
Philip Fisher's growth-investing classic on evaluating management and moats.
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