I know that PE ratio = (share price) / (net earnings per share), so does a company with a net loss mean they have a negative 1-year trailing PE? Is this surprising/unusual? What about for a company IPO?

This was prompted by Splunk's IPO; sources:

2 Answers 2


Usually their PE ratio will just be listed as 0 or blank. Though I've always wondered why they don't just list the negative PE as from a straight math standpoint it makes sense.

PE while it can be a useful barometer for a company, but certainly does not tell you everything. A company could have negative earnings for a lot of reasons, some good and some bad. The company could just be a bad company and could be losing money hand over fist, or the company could have had a one time occurrence such as a big acquisition or some other event that just affected this years earnings, or they could be an awesome high growth company that is heavily investing for their future and forgoing locking in profits now for much bigger profits in the future.

Generally IPO company's fall into that last category as they are going public usually because they want an influx of cash that they are going to use to grow the company much more rapidly. So they are likely already taking all incoming $$ and taking on debt to grow the company and have exceeded all of those options and that's when they turn to the stock market for the additional influx of cash, so it is very common for these companies not to have earnings. Now you just have to decide if that company is investing that money wisely and will in the future translate to actual earnings.

  • 3
    P/E below 0 is more likely to confuse than inform on account of the nasty discontinuity in the function at E=0 for a fixed P. Consider the billion-dollar company that loses $1, and the billion-dollar company that earns $1. The latter has a P/E of a billion, and the former has an extended P/E of -1 billion. That's kinda messed up, and the P/E has ceased to be a meaningful metric of a company's performance. Moreover, a low P/E on a profitable stock is a sign of a more attractive stock; that ceases to be the case when comparing the stock with one that has a negative P/E.
    – user296
    Apr 20, 2012 at 17:54
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    "Though I've always wondered why they don't just list the negative PE as from a straight math standpoint it makes sense" But from a practical standpoint it does not. Would a P/E of -100 be "cheaper" than a P/E of -1? How about -1 vs 1? How would you compare those? The comparability breaks down when you go negative.
    – D Stanley
    Jan 8, 2020 at 13:47
  • @DStanley: The meaningful thing is E/P. The fact that everything is does backwards with P/E seems mostly because people would rather think about small integers (which they get by rounding) than comparing fractions. But for example, 200*E/P would be meaningful and convenient.
    – Ben Voigt
    Jan 8, 2020 at 22:39

When presenting negative P/E values, most brokers and equity analysts show them as "n.m.", which stands for not meaningful. I have never seen a P/E ratio of 0.

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    P/E of 0 implies the price is 0. There are not a lot of free companies outside of bankruptcy courts.
    – user296
    May 8, 2012 at 21:32
  • I like that "n.m." could also stand for "never mind!"
    – user12515
    Jan 8, 2020 at 6:32

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