Final answer:
Earnings per share is a better profitability indicator than net income for public companies, as it provides a per-share earnings assessment, crucial for stock price evaluation and investment decision making.
Step-by-step explanation:
Earnings per share (EPS) is better indicator of a company's profitability than net income only when the company is a public entity with common stock shared amongst shareholders. While net income provides a total figure of earnings, EPS gives investors insight into how much money the company makes for each share of its stock, which is vital for stock price assessment. Since expectations determine stock price, a shift in those expectations based on EPS figures can significantly influence investment decisions.
Analysts and investors use EPS as a tool to predict future profitability, seeking out companies that may currently be undervalued but have the potential to outperform in the future. This involves identifying companies with poor current prospects according to the general market consensus but are poised for future success—referred to as 'shining stars.'