Ask Colin

Would it worry you if a PE ratio was negative?

It may be pedantic, but there is no such thing logically as a negative PE multiple, although some data services may show one. PE stands for Price divided by Earnings. If there are no earnings, then there is no PE multiple. Where you see negative PE multiples, it means the company made a loss.

Companies making losses are really outside my approach. For me to buy one, it would have to be a one-off, non-cash write off that caused the loss and I would want to be really sure that the underlying business was sound. The chart will help. If it was not in an uptrend, I would wait until it was.

You mention that you see this for technology companies. In most cases, the ones making losses will never have made a profit. I would leave these to the speculators. A conservative investor, who cares about preservation of capital, would never touch them until they see some consistent profits from the business. There are plenty of good businesses to invest in without gambling on start-ups.

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