How long should one wait for a turnaround when a company’s Pre-Tax Profit (PTP) or Earnings Per Share (EPS) declines?
The BetterInvesting stock analysis methodology does not specify a fixed time frame for waiting on a turnaround in a company’s Pre-Tax Profit (PTP) or Earnings Per Share (EPS). Instead, investors are encouraged to follow a disciplined review process guided by BetterInvesting’s core principles:- Review Quarterly: Revisit each stock in your portfolio every three months. Update your Stock Selection Guide (SSG) with the latest financial data to evaluate whether the company continues to meet your investing standards.
- Focus on Long-Term Trends: Short-term dips in PTP or EPS can happen due to market cycles or temporary business factors. If the company’s fundamentals—such as quality, growth potential, and financial strength—remain intact, it’s often best to stay patient rather than react to short-term changes.
- Watch for Persistent Declines: A consistent drop in PTP or EPS over several quarters can signal deeper issues. Persistent weakness in profitability or growth may indicate that the company no longer fits your investment criteria.
- Use Your Criteria: The decision to hold or sell should depend on whether the company continues to meet your defined standards for growth, quality, and consistency. If those standards aren’t met over multiple quarterly reviews, it may be time to consider selling.
Review quarterly, remain patient with short-term declines, and focus on long-term fundamentals with a bias towards holding on longer with higher quality companies. If a company shows persistent weakness and no signs of recovery, reassess whether it still fits your investment goals.
