You'll often notice these on a chart for a security. This can mean one of two things. The first and simplest explanation is that there is simply no data available at the time of reporting. This will be the case with a newly listed company like an initial public offering IPO that has yet to release its earnings report.
A stock can't have a negative price in the market. They should be aware they are buying shares of a company that has lost money. Of course, this is not always a reason to worry. High-growth companies in the semiconductor, biotech, or internet sectors often lose money in the first few years as they experience rapid expansion or growth, grow their customer base, and develop new products and markets.
The expectation is that the company will turn a profit, but in the short-term they have to burn cash to accelerate growth and revenue. Amazon is a prime example of a company that lost money year after year, yet remains a high flyer on the market in terms of its share price and market capitalization. If a company has historically had a track record of profits and then turns negative, it could mean they are in financial trouble or in a dying industry.
It may also mean it's too new to the investment world. Its interpretation should be taken in conjunction with other financial ratios, industry trends, historical performance across peers, and the market as a whole.
The question looked something like this:. In this circumstance what should I do? Should I buy more shares, sell these shares, or hold these shares? First of all, this is a great question because your head is in the right place. This is a great stepping stone into solid fundamental analysis.
Now, if we look at that formula, we should notice that Price can never be a negative number. Whether negative earnings is bad, or would cause you to change your investment decision between a buy or a sell is the million dollar question.
As well, if the projections are accurate, it can give investors an insight into stocks that are likely to soon experience growth. True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute , as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website , view his author profile on Amazon , his interview on CBS , or check out his speaker profile on the CFA Institute website. While Price-Earnings Ratio can be a solid indicator of value if seen in isolation it has a potential to mislead or misinform. He is passionate about keeping and making things simple and easy.
Running this blog since and trying to explain "Financial Management Concepts in Layman's Terms". Thanks for sharing this article. This article is very helpful for my accounting.
0コメント