Can anybody explain how to use P/S ratio. I understand the concept of P/E/G ratio but i'm not sure how to use P/S as a ratio for valuation?
Any further insight welcome .
A good book to read is Beat the Market by Charles Kirkpatrick. When I use PSR I'm looking for a ratio between 0.5 and 1.6 which fits in with Kirkpatrick's Bargain model.
One useful trick that you can use with P/S (or any other metric) on Stockopedia is to compare its "rank" in the market (or the sector) rather than directly against a fixed number.
So for example, you might not know what the typical P/S value is for other stocks in the same sector, but if you want to make sure you don't overpay you could create a rule
where the rank is measured out of 100 and Stocko's glossary tells us that P/S is ranked 0 (highest) to 100 (lowest). So we want to be greater than 50 to be cheaper than the median stock in the sector.
