Definition:

The 3-year EPS Growth Rate measures the annualized rate at which a company's earnings per share (EPS) have grown over a three-year period. It provides insight into the company's profitability trend and growth potential.

Formula:

((EPS at end of period / EPS at start of period) ^ (1/3)) - 1

How to use the metric:

Investors use the 3-year EPS Growth Rate to assess a company's historical growth performance and to make projections about its future earnings potential. A higher growth rate may indicate a strong company with good growth prospects, while a lower rate might suggest stagnation or decline.

Limitations:

The 3-year EPS Growth Rate can be affected by one-time events or accounting changes that may not reflect the company's ongoing performance. It also does not account for the company's size, market conditions, or industry-specific factors that might impact growth.

Applies to:

This metric is particularly useful in industries with stable and predictable earnings, such as consumer goods, healthcare, and technology, where growth trends can be more reliably assessed.

Doesn't apply to:

Industries with highly volatile earnings, such as commodities or startups, may not benefit from this metric as short-term fluctuations can skew the growth rate, making it less reliable.

Summary:

The 3-year EPS Growth Rate is a valuable tool for evaluating a company's earnings growth over a medium-term period. While it offers insights into profitability trends, investors should consider its limitations and use it alongside other metrics for a comprehensive analysis.