What it means
Earnings yield expresses what percentage of the share price the company earns annually. A stock at $100 with $5 EPS has a 5% earnings yield. It's directly comparable to bond yields and Treasury rates.
Why it matters
Earnings yield vs Treasury yields is the famous 'Fed model' equity-vs-bonds comparison. Wide spreads favor equities; narrow spreads favor bonds. The model has obvious limitations but is mentally useful.
How to use it
Compare earnings yield to the 10-year Treasury yield to gauge relative attractiveness. Adjust for growth - high-growth businesses justify lower current earnings yields.
Take it further
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
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