What is E/Y?
The inverse of the P/E ratio, showing how much earnings you get per dollar invested in the stock.
Think of it like this
Like knowing the interest rate on a savings account - if a stock has 8% earnings yield, it's 'earning' 8 cents for every dollar of stock price.
Formula
Earnings Yield = EPS ÷ Stock Price × 100 = 1 ÷ P/E Ratio × 100- EPS: Earnings Per Share (trailing 12 months)
- Stock Price: Current market price per share
Why it matters
- Easy to compare with bond yields
- Higher yield = potentially better value
- Used in Fed Model for market valuation
- Useful for value investors
What's a good value?
> 8%
High Yield
Potentially undervalued
5-8%
Moderate
Fair value range
3-5%
Low Yield
Expensive or high-growth
< 3%
Very Low
Very expensive or negative earnings
Real-world example
A stock with P/E of 15 has an earnings yield of 6.7% (1/15). Compare this to a 10-year Treasury at 4%.
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