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 ?
Investment rounds in similar early-stage companies in the region have been within the range of 3 to 5 times price-to-sales ratio.
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.
Dividing the company's nearly $19 billion market cap by its annual sales implies a price-to-sales ratio greater than 50.
In addition to high P/E ratios, McMillan is concerned about the price-to-sales ratio and margin debt-to market ratio -- both either at or near record highs.
The price-to-sales ratio (PS), the price-to-earnings ratio (PE) and the price-to-book ratio (PB) measure investors' view of the value of the firm's sales, earnings and equity.
Its price-to-sales ratio of 1.6 is nearly 67 per cent higher than its long-term average.
"That's six times as high as Facebook's price-to-sales ratio, which is 14," Stewart wrote in a Thursday (https://www.nytimes.com/2017/03/02/business/snap-ipo-valuation.html?_r=0) column that was somewhat skeptical of the IPO's hype.
* Price-to-sales ratio. A stock's capitalization divided by its sales over the trailing 12 months.
This small-denominator problem induces considerable nonnormality in the price-to-sales ratio. For instance, in our sample, the skewness of the cross-sectional distribution of price-to-sales ratio is 26.9 and the kurtosis is 856.5.
TABLE 2 Determinates of the Price-to-Sales Ratio (P/S) (ordinary text squares) Coefficient SE P Smoke-Free 0.059 0.021 0.006 Constant 0.398 0.047 <0.001 SDCF/sales 0.708 0.067 <0.001 Per capita GSP ($) -0.003 0.002 0.152 GSP growth rate (% per year) 1.089 0.549 0.048 Unemployment (%) -1.388 0.517 0.008 Fast food 0.067 0.018 0.000 Family -0.036 0.012 0.048 Time -0.018 0.004 <0.001 Weighted [R.sup.2] 0.824
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.