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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.

  • Thanks. What type of windfall gains could there possibly be? The company is burning cash – Jakobovski Jul 16 '18 at 10:11
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    @Jakobovski There are a class of investors who will buy tons of different penny stock. Mostly they lose; at times one of them suddenly gives them x100 or x500 profits. Similarly, some would believe that Sears would suddenly turn around and quickly shoot up ... giving an handsome return. High Risk / High Reward scenario. – Dheer Jul 16 '18 at 10:16
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    Dheer - “loose” rhymes with “moose” . My high school freshman English teacher wrote this on a paper I got back. I haven't made this mistake since. Except of course when AutoCorrect just throws in the wrong word. And I miss it. I corrected the spelling in your comment. – JoeTaxpayer Jul 16 '18 at 13:50
  • @JoeTaxpayer Thanks. I keep saying, these days my Spelling's are so bad even spell check is lost :) – Dheer Jul 16 '18 at 14:12
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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.

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