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Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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-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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.