Price-to-sales ratio

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 ?
In addition to high P/E ratios, McMillan is concerned about the price-to-sales ratio and margin debt-to market ratio -- both either at or near record highs.
Investment rounds in similar early-stage companies in the region have been within the range of 3 to 5 times price-to-sales ratio.
That's six times as high as Facebook's price-to-sales ratio, which is 14," Stewart wrote in a Thursday (https://www.
Companies are selected using the AlphaDEX method, taking into account growth factors such as share price performance, revenue growth, price-to-sales ratio as well as value growth factors, such as price-to-book and price-to-cash-flow ratios, and return on capital.
Once you have filtered the list of candidates, you can further fine tune it by comparing each stock's price-to-book value ratio, price-to-cash flow ratio and price-to-sales ratio against industry and overall market average.
Separately, the independent trader and blogger Brian Johnson late last month built a complex "stock screen" designed to find high-value companies, including criteria such as a price-to-cash-flow ratio of less than 10, a price-to-sales ratio of less than one and a price-to-book ratio of less than two.
While Smith focuses on a company's price-to-book ratio, James O'Shaughnessy of O'Shaughnessy Capital Management, Greenwich, Connecticut, says the price-to-sales ratio is the best value indicator.
The price-to-sales ratio of the S&P 500 has only been higher during the dot-com bubble," he said.