Definition:

The 5-year EPS Growth Rate measures the annualized rate at which a company's earnings per share (EPS) have grown over a five-year period. It provides insight into the company's profitability trends and growth potential.

Formula:

((EPS at end of period / EPS at start of period) ^ (1/5)) - 1

How to use the metric:

Investors and analysts use the 5-year EPS Growth Rate to evaluate a company's historical earnings performance and to estimate future growth potential. A higher growth rate may indicate a strong company with good prospects, while a lower rate could suggest stagnation or decline.

Limitations:

The 5-year EPS Growth Rate does not account for short-term fluctuations or external factors that may have impacted earnings. It also assumes that past growth rates will continue, which may not be the case. Additionally, it can be skewed by one-time events or accounting changes.

Applies to:

This metric is particularly useful in industries with stable and predictable earnings, such as consumer goods, healthcare, and technology, where historical performance can be a good indicator of future growth.

Doesn't apply to:

Industries with highly volatile earnings, such as commodities or startups, may not benefit from this metric as past performance may not be indicative of future results due to market fluctuations or rapid changes in business conditions.

Summary:

The 5-year EPS Growth Rate is a valuable tool for assessing a company's historical earnings growth and potential future performance. However, it should be used in conjunction with other metrics and analyses to account for its limitations and ensure a comprehensive evaluation.