Yes, a stock can have a negative price-to-earnings ratio (P/E). 

The P/E ratio provides the market value of a stock compared to the company's earnings. The P/E ratio shows what the market is willing to pay today for a stock based on its past or future earnings. A high P/E typically means a stock's price is high relative to earnings, while a low P/E indicates a stock's price is low compared to earnings. The P/E is calculated by dividing the current price by the current earnings per share or EPS

Investors use the P/E ratio to determine if a stock is overvalued or undervalued. However, investors also use the P/E to gauge market expectations for future earnings growth. A high P/E might be due to investors expecting earnings growth in the coming quarters, and as a result, investors have been buying expecting the stock price to appreciate.  

A negative P/E ratio means the company has negative earnings or is losing money. Even the most established companies have had times when they've lost money, but companies that have consistently had a negative P/E ratio are not generating enough profit and run the risk of bankruptcy.

A negative P/E may not be reported. Instead, the EPS might be reported as "not applicable" for quarters in which a company reported a loss. Investors buying a company with a negative P/E should be aware that they're buying shares of a company that is losing money and should be mindful of the risks.

However, there are sectors with companies that have negative P/Es when the companies are just starting out. Pharmaceutical companies that invest billions of dollars in drug research may report a loss for years before turning a profit. Also, technology companies may post a loss, yet the stock price may rise significantly due to market expectations of positive earnings growth in the years to come. As with any financial metric, it's important to compare the P/E ratio with companies in the same industry.

For more on P/E ratios, please read "How to Use the P/E Ratio and PEG to Tell a Stock's Future."

  1. How can the price-to-earnings (P/E) ratio mislead investors?

    A low P/E ratio doesn't automatically mean a stock is undervalued, just like a high P/E ratio doesn't necessarily mean it ... Read Answer >>
  2. What does the forward P/E indicate about a company?

    Explore the forward price-to-earnings ratio, and learn its significance and how it compares to the traditional price-to-earnings ... Read Answer >>
  3. What is the difference between forward p/e and trailing p/e?

    Understand the difference between the trailing P/E ratio, which is the standard price-to-earnings calculation, and the forward ... Read Answer >>
  4. What is the average price-to-earnings ratio in the telecommunications sector?

    Discover the average trailing and forward price-to-earnings ratios for the telecommunications sector and the usefulness of ... Read Answer >>
Related Articles
  1. Investing

    Can Investors Trust The P/E Ratio?

    The P/E ratio is one of the most popular stock market ratios, but it has some serious flaws that investors should know about.
  2. Investing

    Getting On The Right Side Of The P/E Ratio Trend

    Buying at the right time is crucial, but how do we know when that is?
  3. Investing

    Are stocks with low P/E ratios always better?

    Is a stock with a lower P/E ratio always a better investment than a stock with a higher one? The short answer is no. The long answer is it depends.
  4. Investing

    Understanding The P/E Ratio

    Learn what the price/earnings ratio really means and how you should use it to value companies.
  5. Investing

    What Lies Ahead for Apple's P/E ratio

    Recently, Apple's P/E multiple has come down to levels equal to the S&P 500. What does the future hold for the tech giant's P/E ratio?
  6. Investing

    Profit With The Power Of P/E Ratio

    The P/E ratio is a valuable tool when deciding on an investment, but it's not the only thing to consider.
  7. Investing

    The average price-to-earnings ratio in the retail sector

    Find out about the retail sector's average price-to-earnings ratio, or P/E ratio, and average P/E for companies in the seven different categories of retail.
  1. Trailing Price-To-Earnings - Trailing P/E

    Trailing price-to-earnings (P/E) is is calculated by taking the ...
  2. Rule Of 18

    Rule of 18 allegedly foretells if stocks will rise or fall based ...
  3. Multiple

    A multiple measures some aspect of a company's financial well-being, ...
  4. Relative Valuation Model

    A relative valuation model is a business valuation method that ...
  5. Franchise P/E

    Franchise P/E, the present value of new business opportunities ...
  6. Earnings

    Earnings typically refer to after-tax net income or a company's ...
Trading Center