Why are negative valuation ratio values not included in comparative company analysis? This appears to be a general practice ("Valuation: Measuring and Managing the Value of Companies, University Edition" (2010), pg.312 and "Investment Valuation 3rd Edition" by Aswath Damodaran). Eg. from Damodaran
The fact that multiples such as the price-earnings ratio can never be less than zero and are unconstrained in terms of a maximum results in distributions for these multiples that are skewed toward the positive values[...] When the earnings per share are negative, the price-earnings ratio for a firm is not meaningful and is usually not reported. (Page 493)
(what does that mean, "not meaningful"?) and in that same chapter (Chapter 17), they have a study question...
- Generally, we cannot compute PE ratios for firms that have negative earnings. What are the implications for statistics such as industry- average PE ratios?
Again, the exclusion of negative valuation ratios (eg. P/E) seems to be a general practice and I'm curious as to why. If this perception is wrong and in fact many analysts do include negative ratio values in thier comps analysis, could someone also please let me know the reasoning why?