/biz/ - Business & Finance

>>18986679
Then it's just negative. P/E ratio means little to nothing, for most clown car tech stocks. For some companies a negative P/E is noise, like in SaaS (for example $WORK). A company like Slack may have customer acquisitions costs in the millions, that don't full pay themselves back until year 4. So, imagine you run this company. It costs you $100 to acquire a customer that will pay you $25/year. So you spend $100/year on marketing, and every year you acquire 1 customer.

Year 1:
Revenue: $25
Cost: $100
Profit: -75

Year 2:
Revenue: $50
Cost: $100
Profit: -50

Year 5:
Revenue: $125
Cost: $100
Profit: Stock to the moon.

It doesn't always work out this way, but this is the basic math for SaaS companies, and pretty much every other tech company that invests heavily in marketing. Spending the money in marketing is a good investment because there is a consistent return - this is also called have good unit economics. Most investors will see this and say this company is worth a shitton despite having negative PE because they are still in a growth phase.

There are other companies, like UBER and LYFT that are valuable and have trash unit economics, or others like TSLA in which the unit economics don't support it's valuation. These companies are traded on hype, and stock market "fundementals" go out the window.