Frequently asked questions

A yield just flips a valuation multiple upside-down and expresses it as a percentage of the price:

• Earnings yield (E/P) = net income ÷ market cap — the inverse of P/E.
• Sales yield (S/P) = revenue ÷ market cap — the inverse of P/S.
• Revenue/EV and EBITDA/EV yields — the inverses of EV/Revenue and EV/EBITDA.

The rule is simple: higher yield = cheaper. A 5% earnings yield is the same statement as a 20× P/E, just written so it behaves well.

P/E puts earnings in the denominator. As a company’s profit shrinks toward zero, its P/E shoots off toward infinity, and the moment earnings turn negative the ratio flips to a meaningless negative number. So P/E is non-linear and discontinuous exactly where the most interesting IPOs live — near break-even.

That breaks comparison. Is a 15× P/E “half as expensive” as a 30×? Not linearly — the gap between 15× and 30× is not the same as between 100× and 115×. Averaging P/E ratios, fitting a trendline through them, or bucketing them all inherit that distortion, and a single near-break-even name can dominate the result.

Yields fix this because the denominator is price (or enterprise value), which is always positive and never near zero. Earnings yield moves smoothly from positive, through zero, into negative, so the whole cross-section sits on a straight, linear axis you can average, plot, and rank on.

Take two IPOs — one profitable, one loss-making — and read each first as a multiple, then as a yield:

“Higher = cheaper” holds cleanly among profitable names. Once an earnings yield goes negative, it stops being a valuation statement and becomes a profitability one: a −30% earnings yield means the company is losing a lot relative to its price — not that it is “expensive.”

So read a negative earnings yield as how deep the losses run, and for pre-profit names lean on the sales yield and the growth-adjusted (GARP) yield rather than earnings alone.

No — a yield is exactly reversible. P/E = 100 ÷ earnings-yield %, so a 5% earnings yield is a 20× P/E and a 2% yield is 50×. The underlying number is identical; we just show the form that adds, averages, and ranks without fooling you.

Newly public companies are disproportionately young, fast-growing, and not yet profitable — and a meaningful share are effectively pre-revenue (biotech, deep-tech, early platforms). On a P/E basis, most of them are simply undefined: their P/E is blank, so they fall out of every P/E average, bucket and scatter. You end up drawing conclusions from only the minority of IPOs that happen to be profitable.

With earnings yield, an unprofitable issuer keeps a real, negative value and stays in the analysis. A pre-revenue company still has a defined sales yield near zero, which is itself informative. Nothing gets silently dropped, so the picture reflects the whole IPO market — not just the profitable slice.

The traditional growth-adjusted multiple is PEG = P/E ÷ growth, which is doubly fragile: it needs a positive P/E and a positive growth rate, and it divides one shaky number by another. Our linear analogue simply adds the two things you care about:

GARP yield = earnings yield % + revenue-growth % (and, on the sales side, S/P yield % + growth %).

A higher number means more combined cheapness-plus-growth. Because it is a sum rather than a ratio, it is defined even for loss-makers and hyper-growth names where PEG is blank — which is most of the IPO universe.

For a genuinely pre-revenue company — a clinical-stage biotech, say — even sales yield is essentially zero, so no valuation yield is meaningful. That is a feature, not a bug: rather than invent a multiple, we lean on pipeline, cash runway and burn rate. The yields are honest about when they do not apply.

Compare within a sector, not across it. A “cheap” earnings yield for a bank is not the same as for a biotech — different growth, risk and capital intensity. That is why the analytics benchmark each IPO against same-sector, same-vintage peers rather than one global number.

Revenue/EV and EBITDA/EV use enterprise value (market cap + debt − cash) instead of market cap, so two companies with very different debt loads still compare fairly. EBITDA/EV is the capital-structure-neutral cousin of earnings yield.

On the Factor Performance analytics tab, the valuation factors and their scatter plots are all yields (Earnings Yield, Sales Yield, Revenue/EV, EBITDA/EV, and the GARP yields). On each IPO’s detail page, the peer-comparison table and the target-price valuation rows are shown as yields too, so the issuer and its comparables line up on the same linear axis.

The underlying data is unchanged — a 5% earnings yield and a 20× P/E are the same fact. We just show the form that adds, averages, and ranks without fooling you.

IPOSignal is an IPO research and analytics platform — an IPO calendar with pricing, lock-up and quiet-period dates, per-company research, and factor analytics on what has historically driven post-IPO returns. More on the approach is on the about page.

The research is built from public SEC filings and market data, with sources shown on each IPO page. The analytics are computed from that same underlying data across the whole IPO universe, so a factor you read about is measured the same way for every company.

No. IPOSignal is for information and education only — not investment advice, and not a recommendation to buy or sell any security. Always do your own research and consider your own circumstances.

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