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.

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.

References in periodicals archive ?
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.
VALUED INFORMATION The price to sales ratio is calculated by dividing the market price (of the stock) by the sales per share.
This week, I'm going to focus on one of my favorite valuation metrics for determining a company's under or overvaluation: the Price to Sales ratio.
The Price to Sales ratio is simply: Price divided Sales.
One of the reasons I like the Price to Sales ratio is because it looks at sales rather than earnings like the P/E ratio does.
Secondly, I'd be hard pressed to find a screen where adding the Price to Sales ratio didn't improve it.
To round out the rosy outlook is Perini's price to sales ratio, which comes in at .
Rebalancing the S&P([R]) indexes annually by company revenue reinforces the conventional wisdom of reallocating assets from sectors and stocks with high price to sales ratios to those with low price to sales ratios," explains Sean O'Hara, president of RevenueShares.