FAQs about Practical Trading
Is an unprofitable company worth investing in? How to value it?
Overview
In this article, we will introduce:
Is your company profitable?
Is an unprofitable company worth investing in?
Then how to value it?
Investors have been overjoyed with earning results for many years. However, Amazon famously lost money for its first 17 straight quarters as a public company. Now, Amazon records a $6.3 billion quarterly profit, and the market value soars rapidly.
It's true that an unprofitable company will record huge profits one day.
Is your company profitable?
There are a lot of companies resulting in a loss for many years in the market. We can figure out whether it earns or loses money on the stock page.
Moomoo Stock Page
If the P/E(TTM) shows "Loss", it means the company loses money in the latest trailing 12 months.
Is an unprofitable company worth investing in?
The answer is it depends. We take $Roku Inc(ROKU.US)$ for example.
"Financial" tab on Moomoo stock page
According to the financial data of ROKU, the revenue has been always higher than the predicted value in recent quarters, which means the company grows up rapidly as net income is not the most important indicator the Street cares about at this stage. Growth matters.
Then how to value it?
We should use the Price-to-Sales (P/S) to value an unprofitable company.
We can figure out the P/S ratio in the "Analysis" tab. A P/S ratio higher than the past or rivals' represents the stock may be overvalued.
"Analysis" tab on Moomoo stock page
Price-To-Book (P/B) ratio is another valuation indicator. We have talked about it in the previous article.