You Decide: Should Wall Street place so much importance on the EPS figure or not?
Response to the following problem:
Recently, your mom came to you with questions about some of her investments. A year ago, she made an investment in 10 companies that are traded on the S&P 500. She tried to pick enough different companies to "diversify" her portfolio. Last week, one of her companies came out with "lower than expected EPS."
In the two days following the news, the stock price dropped almost 30%! She wanted to know why so many people cared about one number. How do you respond?