Definition
Price-to-Sales ratio measures how much investors pay for each dollar of a company's revenue. It's useful for valuing companies with no earnings or inconsistent profits, such as early-stage growth companies. Lower P/S ratios may indicate undervaluation, but profitability matters too.
Formula
Example
A company with $1 billion market cap and $500 million annual revenue has a P/S of 2.0x. Tech companies often trade at P/S of 5-10x or higher due to growth expectations.
FAQ
What is P/S Ratio (Price-to-Sales)?
A valuation ratio comparing stock price to revenue per share.
How do you calculate P/S Ratio (Price-to-Sales)?
A common formula for P/S Ratio (Price-to-Sales) is: P/S Ratio = Market Cap / Total Revenue = Stock Price / Revenue Per Share
Why is P/S Ratio (Price-to-Sales) important?
P/S Ratio (Price-to-Sales) helps investors evaluate valuation and make more informed decisions.
Related Terms
P/E Ratio (Price-to-Earnings)
A valuation ratio comparing a company's stock price to its earnings per share.
P/B Ratio (Price-to-Book)
A valuation ratio comparing stock price to book value per share.
EV/Sales (EV/Revenue)
A valuation multiple comparing enterprise value to total revenue.
Revenue (Sales)
The total income from selling goods or services before any expenses.