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January 14th, 2016, 07:55 AM   #1
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Growth rate

I would greatly appreciate it if someone would help me with this.

Let's say I have company A and Company B.

Company A share sells for 500 dollar and have earnings of 5 dollar/share.
Company B share sells for 100 dollar and have earnings of 7 dollar/share.

This would give:
Company A an earnings yield of 5/500 = 1%
Company B an earnings yield of 7/100 = 7%

In a 0 growth scenario company B looks better (let's say I only care about earnings). But what if I introduce future earnings growth into the picture? How much larger does company B future earnings growth need to be to be the better choice? Can someone please explain the right way to think about this?

Last edited by skipjack; January 14th, 2016 at 12:33 PM.
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