Expert: Art Young - 2/8/2001

Question
hello, Art..
 i know this is an easy one, but has me stopped cold.  when calculating past performance of a company, say the avg. P/E for the last 5 years..how do i do treat the (-) negative EPS given for a single year for the P/E of that year? Is it as simple as placing the (-) in front of the answer? say a (.31) EPS is given for a $14.625 price...is the P/E -47.18?
 Any help you could give me would be greatly appreciated...thank you.   Jim

Answer
Hi Jim,

Most services that report P/E don't calculate a negative P/E, they just report something like "negative earnings" or "not calculable."  Take it to the lowest level, P/E identifies how much an investor must pay for a dollar of a company's earnings.  If the company has no earnings, then P/E is not very meaningful.

So, arithetically, negative earnings means a negative P/E, but when you're analyzing a stock, negative earnings means that you need to look at factors other than just P/E to figure out if it's a good investment.

Hope this helps.  You may also find my free email newsletter helpful.  You can see the latest issue and enter your subscription at www.mmzero-llc.com/fp/email.

Art Young
Mile Marker Zero, LLC
younga@mmzero-llc.com
www.mmzero-llc.com/fp