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Looking at a stock like TWLO: https://finance.yahoo.com/quote/TWLO/?p=TWLO, it has a negative PE. Check the 6 month charge and notice how much the stock has dropped.

Here are a few more negative PE examples:

https://finance.yahoo.com/quote/ITCI/?p=ITCI - check 6 month chart https://finance.yahoo.com/quote/MCRB/?p=MCRB - check 1 year chart

If a company has a negative PE, is this a sign its stock could drop significantly? Or that the company could even declared bankruptcy?

Compared to an AAPL, you would not expect any significant drop in its stock.

What does it mean if a company has N/A for its PE: https://finance.yahoo.com/quote/AA/?p=AA?

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P/E is the number of years it would take for the company to earn its share price. You take share price divided by annual earnings per share. You can take the current reported quarterly earnings per share times 4, you can take the sum of the past four actual quarters earnings per share or you can take some projected earnings per share.

It has little to do with a company's actual finances apart from the earnings per share. It doesn't say much about the health of a company's balance sheet, and is definitely not an indicator for bankruptcy. It's mostly a measure of the market's assumptions of the company's ability to grow earnings or maintain it's current earnings growth.

A share price of $40 trading for a P/E ratio of 10 means it will take the company 10 years to earn $40 per share, it means there's current annual earnings per share of $4. A different company may also be earning $4 per share but trade at 100 times earnings for a share price of $400. By this measure alone neither company is more or less healthy than the other. One just commands more faith in the future growth from the market.

To circle back to your question regarding a negative P/E, a negative P/E ratio means the company is reporting negative earnings (running at a loss). Again, this may or may not indicate an imminent bankruptcy. Increasing balance sheet debt with decreasing revenue and or earnings and or balance sheet assets will be a better way to assess bankruptcy risk.

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  • Is "earnings" gross revenue or net profit? (Or somewhere in-between)? – Kevin Feb 22 '17 at 1:26
  • @Kevin, earnings as it relates to P/E is generally net income. I believe net income is a required line item in the statement of operations for 10k and 10q filings. – quid Feb 22 '17 at 1:36
  • Every once in a while, a company may even make the deliberate decision to run at a loss for a period in order to secure a better longer-term position for itself. I'm not sure how common that is in publicly traded companies, but know for a fact that it happens every now and then. The obvious example is newly started companies, which almost always run at a loss for a while before building up traction for whatever it is the company is doing. – user Feb 22 '17 at 10:26
  • To the person who tried to edit this answer indicating my definition is incorrect. PE is current share price over annual net earnings per share. If the share price is $20 and the company is making $4 per share net earnings that, in a practical sense that means it will take the company 5 years to earn it's share price. Granted this is not a textbook definition but it's not "incorrect" – quid Aug 22 '17 at 15:25

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