A measure of the estimated growth in earnings per share (EPS) relative to historical earnings. It relates estimated earnings per share for future periods to historical earnings per share. A share with a high earnings torpedo may experience a large drop in price if earnings do not live up to the higher earnings estimates made by analysts in the next period.

Stocks whose earnings plummet abruptly cause a very serious trouble to their companies. These companies often have high P/E ratios as a result of a market consensus that earnings growth is expected to be extraordinary. As a result, they are under pressure to keep earnings up, irrespective of their economic realities (that may be shabby and deplorable). Sometimes, companies whose earnings “nosedive” must have relied on accounting tricks to keep earnings high as long as possible until such tricks were no longer workable. At any cost, companies should be keen to avoid falling into an earnings torpedo.