This phase is from Schewser: “Negative earnings render P/E ratios meaningless. In such cases, it is common to use normalized EPS and/or restate the ratio as the earnings yield (E/P) because price is never negative. A high E/P suggests a cheap security, and a low E/P suggests an expensive security, so securities can be ranked from cheap to expensive based on E/P ratios.”
Not quite sure I follow this.
If earnings is negative, using PE ratio is meaningless because it makes PE negative (okay get this part)…
If earnings is negative, and we flip the denominator for the numerator, don’t we still have the same problem? Negative earnings yield? OR does negative earnings yield just infer its poor value? -8%