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Price to Sales Ratio

What is the definition of P/S?

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. Some argue 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. However, this measure was misused during the dot com years to promote companies with no earnings or profits.

This ratio is calculated on a Trailing Twelve Months (TTM) basis.


Stockopedia explains P/S...

Some argue 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 company value.

When EPS are negative or depressed temporarily the Price to Sales ratio can be a more useful indicator than the PE Ratio, and a low P/S can indicate a higher profit potential if the stock recovers. Some commentators have called it 'The King of the Value Factors' and look for P/S ratios of significantly less than 1.

It should be noted that the P/S ratio was abused during the dot com years to promote companies with no earnings or profits.