pricetosales

Price-to-sales, often abbreviated as P/S and sometimes written as pricetosales, is a basic valuation metric that compares a company’s market value to its revenue. It can be calculated as market capitalization divided by revenue over a given period (typically trailing twelve months). Equivalently, it can be expressed as price per share multiplied by shares outstanding divided by revenue, or as price per share divided by revenue per share. A forward P/S uses forecasted revenue rather than trailing revenue.

Interpretation of the P/S ratio depends on context. A lower P/S relative to peers or to the market may indicate undervaluation, while a higher P/S can suggest overvaluation. The metric is often used for companies with little or negative earnings, where price-based metrics like the price-earnings ratio are less informative. Growth-oriented firms may justify a high P/S if investors expect rapid revenue expansion or improving margins.

Limitations and cautions are important. P/S does not account for profitability, cash flow, debt, or capital intensity, so a low P/S can mask distress, and a high P/S can reflect strong profitability or favorable margins. Revenue quality and recognition practices can distort comparisons, and industrial cyclicality or one-time items can skew results. Differences in accounting standards and business models also affect comparability.

In practice, the P/S ratio is most useful when comparing similar companies within the same sector and when used in conjunction with other metrics such as P/E, EV/Sales, and operating margins to form a fuller valuation view.