Price-to-sales ratio

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Price-to-Sales Ratio

A ratio of a company's share price to its revenue from sales over a given period of time, especially a quarter or a year. Fundamentalists and value investors see a low ratio as more positive because it indicates that the company has a great deal of revenue and a fair price, while technicians see a high ratio as more positive because it indicates that share price has increased and will likely continue to increase. In both cases, however, analysts believe the ratio reveals less than other ratios, such as the price-earnings, because price-to-sales does not account for operating expenses in any way.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Price-to-sales ratio.

A price-to-sales ratio, or a stock's market price per share divided by the revenue generated by sales of the company's products and services per share, may sometimes identify companies that are undervalued or overvalued within a particular industry or market sector.

For example, a corporation with sales per share of $28 and a share price of $92 would have a price-to-sales ratio of 3.29, while a different stock with the same sales per share but a share price of $45 would have a ratio of 1.61.

Some financial analysts and money managers suggest that, since sales figures are less easy to manipulate than either earnings or book value, the price-to-sales ratio is a more reliable indicator of how the company is doing and whether you are likely to profit from buying its shares.

Other analysts believe that steady growth in sales over the past several years is a more valuable indicator of a good investment than the current price-to-sales ratio.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
COMPARISON OF SELECTED FINANCIAL CHARACTERISTICS OF SEQUENTIAL BRANDS AND ICONIX SEQUENTIAL BRANDS ICONIX Recent price $13.41 $41.14 Market capitalization $337 million $2.0 billion 2014 revenue estimate $38 million $458 million 2014 EPS estimate $0.26 $2.67 2014 price to sales 8.9x 4.4x 2014 price to earnings 51.6x 15.4x 2015 revenue estimate $58 million $486 million 2015 EPS estimate $0.42 $2.96 2015 price to sales 5.8x 4.1 x 2015 price to earnings 31.9x 13.9x SOURCE: Chris Katje, SeekingAlpha.com
Summary: Continuing the series on financial concepts, MONEY TODAY explains how the price to sales ratio can help an investor know if a stock is worth buying.
Fisher, a noted stock market guru, developed a concept called price to sales ratio, or PSR, which uses sales as a primary parameter in evaluating a company.