I took a look at SHLD financial statements and I cant understand why SHLD is trading at ~$2 when it has -$38 book value and a highly negative P/E?
What am I missing?
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Generally shares trade at higher than book value. This is no different. Although the book value is in negative, which means there are more liabilities than assets; the market believes that it will turn around and hence the price is slightly positive and there are speculators that are into this to take away windfall gains if any.
Because of limited liability.
The downside for investors is limited to the value of the stock, but the upside is unlimited.
As long as a company is not actually bankrupt there is some chance (however slim) of a turnaround. That chance has value to investors so the stock will have a positive value. How small the value is depends on how slim the investors belive the chance of a turnaround is and how big a profit they think could be made if the company was turned around.