LONDON -- When weighing up a potential investment, we always need to look forward rather than backwards. If you buy a stake in a business, it's the future profits that count -- and the stock market will value your shares based on future expectations.
With that in mind, it can be helpful to review what expert City analysts are expecting a company to earn in the coming years. These expectations can be compared to the share price, to give you a better idea of how the stock market is valuing the business.
Today I'm looking at the earnings per share (EPS) forecasts for SSE (LSE:SSE), the FTSE 100 utilities giant.
Analysts expect SSE's profits to be £1.20 per share this year. This estimate means that, compared to today's share price of 1,534 pence, the market is valuing SSE's shares on a forward price-to-earnings multiple of 12.8.
Looking ahead, the consensus then calls for a modest increase in SSE's earnings to £1.24 per share for 2014. Importantly for income-focused investors, analysts predict dividends to leap from 81 pence per share to 90 pence over the same time period, offering a prospective yield of 5.9% for 2014.
But is this dividend prospect enough to mitigate the highly regulated, capital-intensive characteristics of the utilities industry?
Of course, whether this question, the City's profit projections and the current valuation make the shares of SSE "fairly priced" is for you to decide. But if you already own shares in SSE and are looking for similar high-quality investment opportunities, I've helped pinpoint five particularly attractive possibilities in this exclusive wealth report.
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Mark Rogers has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.