I notice that a lot of valuation guidance, such as some online calculators, make company valuation a function of earnings. Therefore a company with small earnings (or no earnings) is valued at 0. For example, a company with $50 million in sales, but $1 million in earnings every year, might be valued at only $5 million, for example, which does not seem logical to me, especially for a growing company. Nobody would sell a growing company with $50 million in sales for $5 million.
What is the story here? Is there a another valuation method that is more reasonable? Does anybody actually use the bogus earnings-based valuation or is that just a pro forma method with no real practical application?