166 EXPLAINING EARNINGS PER SHARE GROWTH SUMMER 2009

Many factors determine stockprices. Two of the more impor-tant are earnings per share andexpected earnings per share growth. The purpose of this article is to focus on the fundamental factors that determine earnings growth, including the role of share repurchase, and to offer a simple method of calculating the expected long-term growth rate of earnings per share. Chan, Karceski, and Lakonishok [2003] reported a high correlation between the price to earnings ratio and the consensus growth forecasts across the IBES universe of U.S. firms for the period 1951–1997. They found, how-ever, that security analysts ’ long-term growth estimates tend to be overoptimistic and con-tribute very little to predicting realized growt