Price-to-Sales Ratio P/S

How many dollars investors pay for each dollar of a company's annual revenue.

Part of the Valuation 101 course · Lesson 8 of 14

Formula

Market Capitalization / Total Revenue

What it is

The price-to-sales ratio compares a company's market value to its total revenue (sales). Because revenue is positive even when a company is unprofitable, P/S can value firms that have no earnings yet. It says nothing about whether those sales are profitable.

Why it matters

P/S is handy for early-stage, high-growth, or cyclical companies where earnings are negative or volatile. Pitfalls: it ignores costs and margins entirely, so a low-margin business and a high-margin business can look similar on P/S despite very different profit potential.

How it's calculated

Divide total market capitalization by trailing-twelve-month revenue, or divide the share price by revenue per share.

How Quintarthai uses it

P/S sits in the multiples section of the Ratios tab on a stock's company page and is available as a filter in the Stock Screener.

Cross-border note. Revenue recognition is broadly converged under IFRS 15 and US GAAP's ASC 606, so P/S is one of the more directly comparable multiples between TSX and US listings, though currency still applies.

FAQ

When is P/S more useful than P/E?

When a company has no earnings or wildly fluctuating earnings, since revenue stays positive and is harder to manipulate than bottom-line profit.

What is the difference between P/S and EV/Sales?

P/S uses only equity market value, while EV/Sales uses enterprise value, which adds debt and subtracts cash and so accounts for the whole capital structure.

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