The real value of the EPS estimate is not in the estimate itself but in the changes in the estimates. Theoretically, when analysts increase the EPS estimate, investors expectations of future earnings increase and the value of the company [and thus its' stock price] increases. These reported changes in earnings estimates are the most consistent leading indicator of the direction in which a stock price is going to move. This is critical in evaluating and deciding whether or not to buy or sell stock.
Example: Well respected analyst Joe Smith from the highly reputable
brokerage firm, ABC, estimates Company XYZ to have greater earnings per share than previously estimated. You, as the investor, will use this information to evaluate whether or not you wish to retain hold of or sell the stock that you own in Company XYZ. Likewise, if you have not already invested in Company XYZ, you may decide to buy shares. In this situation, you as the investor would most likely hold onto or buy shares.
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