Correlation Between Earnings-Per-Share And Stock Price Refer To Value Of The Stock

In the securities market, the fluctuation of stock prices is the most important factor which the investors are most concerned about, Because it directly determines the profit or loss. In the stock market, there are many factors affect the stock prices, such as political and economic environment, monetary policy, industrial policy and the performance of listed companies. These factors are all impact on the changes of the stock prices. But, under the same risk of the system, the problem of how to choose the investment objectives and to make more profit, is the first question for the investors. These years, lots of researchers have made many research productions about the correlation between the achievements of the listed companies and stock price. Investors should learn from these findings. Investors can research on the performance of listed companies to predict the direction of the stock price change. These issues are very important for investors to make choice, which will directly determine the investor’s profit or loss.The innovation lies in this article is to study the degree of impact on the stock price caused by the changes in the size of the earnings per share, and then examine the relationship between stock prices and stock valuation.My research is mainly based on two process:First, I Calculated the pharmaceutical industry stock valuations of listed companies by using Capital Asset Pricing Model (CAPM) and the dividend discount model (DDM), and then compared the valuations to the stock price to study whether the stock prices are overvalued or undervalued. Second, I use earnings per share as a study object, according to historical data, to study correlation between rate of change in earning per share and rate of change in stock price and to arrival at a conclusion by Regression analysis. Through the above two processes, I will study whether the stock prices return to the valuation or be affected by changes in earnings per share.By studying samples of listed companies in the pharmaceutical in Shanghai stock market from2009to2012, my research found that the stock prices of these samples are all overvalued. But, the stock prices did not return to their value, they continue to be affected by the changes of earning per share, and the rate of change in the stock price of listed companies and the rate of change in earnings per share has a significant linear relationship from2009to2011. Through these studies, this article will provide a reference for investors how to invest in the the pharmaceutical industry.