This has been bugging me for a while. I've consulted all sorts of guides, but none gave me a satisfactory answer. My question is: why do Earnings Per Share (EPS) matter? What is it about this metric that gives it any weight? Why do analysts care about EPS?
Here's a sample explanation that I found unsatisfactory:
EPS is a carefully scrutinized metric that is often used as a barometer to gauge a company's profitability per unit of shareholder ownership. As such, earnings per share is a key driver of share prices.
I think that EPS is basically meaningless because the number of outstanding shares is variable. The company chooses how many shares of stock to issue. For example, Microsoft has about 8.24 billion shares outstanding, whereas Amazon has about 462 million shares outstanding. If there's a difference of an order of magnitude in the number of shares, then that's going to be reflected in EPS -- making raw EPS not very useful.
Granted, it might be useful to track EPS of a company over time, but as the number of shares issued is usually constant over long periods of time, that's effectively the same as tracking raw earnings.
So, why is EPS regarded as an important metric?