Earning stability is an indicator of the predictability of a companies earnings. Another way to think of it is a volatility ranking of the earnings. The lower the number, the less volatile. Anything under 10 is very stable. For example, an earning stability of 3 indicates a company has consist earnings, quarter to quarter, year over year.
As far as the EPS growth rate, the technical definition follows:
The compound 3-year growth rate calculated using the least squares fit over the latest two to three years’ earnings per share on a running 12-month basis.Investors.com
Let’s look at a few examples.
FLT – Consistent and Stable Earnings & Growth
The earnings stability of FLT looks as follows:
Given FLT has an Earning Stability of 2 and an EPS Growth Rate of 18%, the company delivers very consistent (stable) earnings. Notice in the lower left the relatively consistent EPS values.
PZZA – Not So Much
Contrast the above with PZZA:
With an Earning Stability of 34 and -9% EPS Growth Rate, the quarterly EPS values (lower left) reflect this inconsistency.
What About N/A?
Earning stability requires 3+ years of earning history. If that is not available, you’ll see N/A.
For the EPS growth rate, a stock must have 3+ years of positive earnings, otherwise you will see N/A.
How Are These Values Calculated?
The technical details of how these values are calculated is shown in the Chart Legend within MarketSmith:
On the chart legend select Weekly from the left sidebar and then hover your mouse over Earnings Stability and EPS Growth rate – the descriptions will show at the bottom of the window.
Earnings Stability values less than 10 indicate a consistent company earning history.
When a company has EPS Growth Rates in the 10% to 20% range, the earnings are sustainable for the long haul. As you get higher, it gets more difficult to consistently produce earnings at that same rate.