price-sales ratio (P/S ratio)

price-sales ratio (P/S ratio)

A financial ratio that compares a firm's stock price with its sales per share (or its market value with total revenue). It is used by some analysts to find companies that may be temporarily undervalued in the stock market. A low P/S ratio is thought to characterize a firm with the potential for a significant turnaround because sales are already being made and improvement need only take place in the margin the firm is able to earn on each dollar of sales.