# Stock Investment Essentials: What is the Relationship Between EPS and PE?

Many people are confused by EPS and PE when looking at stocks, but in fact, it's just one sentence:

**EPS = Company Earnings ÷ Total Shares Outstanding**

For example, if a company has a net profit of 20 million in a year and has issued 10 million shares, then the EPS is 2 yuan per share. In other words, each share can earn an average profit of 2 yuan.

**PE = Stock Price ÷ EPS**

Similarly, if the stock price of this company is 40, the PE is 40÷2=20. This means you need to spend 20 to buy 1 of annual earnings.

How to actually use # #?

- **EPS High** → The company has strong earning power, and the value per share is high.
- **EPS Low** → The company's profitability is average.
- **PE high** → The stock price is expensive, and investors have high expectations for future growth (which could be a bubble)
- **PE Low** → The stock price is cheap, possibly a bargain opportunity.

Core logic: **EPS looks at how much is earned, PE looks at whether it is expensive**. Combining the two can determine whether a stock is worth buying.