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Price-to-Sales Ratio
A valuation metric comparing a company's stock price to its revenue per share.
Price-to-Sales Ratio (P/S)
The price-to-sales ratio measures how much investors pay for each dollar of a company's revenue.
Formula
P/S = Market Capitalization ÷ Total Revenue
Or equivalently: Stock Price ÷ Revenue Per Share
When to use it
- Companies with negative earnings where P/E is meaningless
- High-growth companies reinvesting all profits
- Comparing companies within the same industry
Typical ranges
- Below 1.0: May indicate undervaluation (or declining business)
- 1.0–3.0: Common for mature companies
- Above 10: Usually reserved for high-growth tech companies
Limitations
- Ignores profitability entirely
- A company with high revenue but razor-thin margins will look cheap on P/S but may never produce strong earnings
- Best used alongside other metrics like gross margin trends
Key Takeaways
- Context matters when interpreting any financial metric.
- Combine multiple data points for informed decisions.
- Continue learning to build investment knowledge.
Quick Reference
Category
Valuation
Difficulty
Beginner
Reading Time
1 min
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P/E Ratio
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EV/EBITDA
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Price-to-Book Ratio
Compares a stock's market price to its book value per share.
PEG Ratio
P/E ratio divided by expected earnings growth rate, adjustin...
Learn More
Where You'll See This
This concept appears throughout stock detail pages and financial data.