Why are there still shorts!?

[ggr]

Audi is an established and growing car company that sells 1.5 million cars per year and a P/E of 6.
Tesla is a startup fast growing car company that sells 0.02 million cars per year and has a P/E close to 0 if not negative.

Lots of other good discussion, but I wanted to clarify some of the P/E stuff. See Price-Earnings Ratio (P/E Ratio) Definition | Investopedia .

First, a company that isn't profitable doesn't have a P/E ratio. Yes, if you just apply the formula, you would have a negative one, but that doesn't make sense, because as the P/E ratio gets smaller, you expect to see a more stable and reliably profitable business, but as you cross the discontinuity at zero, you have a company that isn't profitable at all! So your statement about Tesla is almost exactly back to front. When it does become profitable, it will have a very high P/E.

But I guess the important thing I wanted to say is that the P/E ratio doesn't tell you anything about the company, rather the other way around. The company's expected earnings growth and market cap give you a hint as to the kind of company it is, and that tells you what sort of P/E to expect. Then if the company's P/E is less than you expect, it's better than its peers, based on stability of growth and/or profit.

 

[derekt75]

Lots of other good discussion, but I wanted to clarify some of the P/E stuff. See Price-Earnings Ratio (P/E Ratio) Definition | Investopedia .

First, a company that isn't profitable doesn't have a P/E ratio. Yes, if you just apply the formula, you would have a negative one, but that doesn't make sense, because as the P/E ratio gets smaller, you expect to see a more stable and reliably profitable business, but as you cross the discontinuity at zero, you have a company that isn't profitable at all! So your statement about Tesla is almost exactly back to front. When it does become profitable, it will have a very high P/E.

But I guess the important thing I wanted to say is that the P/E ratio doesn't tell you anything about the company, rather the other way around. The company's expected earnings growth and market cap give you a hint as to the kind of company it is, and that tells you what sort of P/E to expect. Then if the company's P/E is less than you expect, it's better than its peers, based on stability of growth and/or profit.

Thanks for the clarification ggr. I was thinking earnings, but wrote P/E.

and yeah, P/E ratio seems like a difficult way to think of a growth company. For the same gross profit, I'd be happier with Tesla if they had $10m in earnings and a 600:1 P/E ratio than Tesla with $200m in earnings and a 30:1 P/E.
Similarly, earnings * P/E ratio seems like a difficult way to value a growth stock.