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Darren Seah asked 3 weeks ago

Hi Victor,
How do I “deal” with the negative EPS value while calculating a company’s average PE for the past 5 years? For example, there is one particular year that the company posted negative EPS but positive values for the rest of the years. 
To calculate the intrinsic value of the company, do I use the Median PE instead of the Average PE? Or is there another approach when it comes to dealing with negative EPS? 
Thanks a lot! 
 

1 Answers
Victor Chng answered 3 weeks ago

Hi Darren,
 
If the company loss making then it is hard to value from PE perspective. You may want to try using price to sales ratio. 

Darren Seah replied 2 weeks ago

Thanks Victor.

So to calculate the intrinsic value, do I use Avg Price to Sales (for the past 5 years ) x Sales per share (Latest) or Avg Price to Sales (for the past 5 years ) x Sales per share (TTM)?

On another note, can I use price to cash flow if the operating cash flow are all positive? Or is price to sales more accurate in this scenario?

Victor Chng replied 2 weeks ago

Hi Darren,

Sorry for the later reply, I missed out your comment here.

Yes, you can do the P/S same as how you do for PE. You can plot the 5Y and 10 Y to get a rough gauge the use TTM sales to get IV.

If cash flow is positive, then it is better to use P/CFO than P/S.

Hope this helps :)