What is P/S Ratio?
The Price-to-sales ratio is a valuable tool for assessing the value of a company. It measures the market value of a company's revenue relative to the total sales it has recently generated.Formula
PTS Ratio = Stock Price/Revenue Per ShareHow do I calculate the price to sales ratio?
It is important to understand the Price-to-Sales (P/S) ratio when evaluating a company's stock. The P/S ratio compares a company's stock price to its revenues and can be calculated by dividing the stock price per share by the total revenue per share. This metric can be used to compare a company's stock to its peers in the industry and it is especially helpful for companies that have not yet become profitable. To calculate the P/S ratio, you can use a spreadsheet program such as Sourcetable.
What is the Price-to-sales (P/S) ratio?
The Price-to-sales (P/S) ratio is a financial ratio used by investors to compare a company's current market price to its revenue. It is calculated by dividing a company's market capitalization by its total revenue. The ratio is used to assess the value of a company and to identify potentially undervalued or overvalued stocks.
What does a high Price-to-sales (P/S) ratio indicate?
A high Price-to-sales (P/S) ratio indicates that the market is valuing the company's stock at a premium compared to its revenue. This may be due to investor optimism or the expectation of future growth. However, a high P/S ratio may also indicate a potential overvaluation of the stock.
What does a low Price-to-sales (P/S) ratio indicate?
A low Price-to-sales (P/S) ratio indicates that the market is valuing the company's stock at a discount compared to its revenue. This may be due to investor pessimism or a lack of confidence in the company's future prospects. However, a low P/S ratio may also indicate a potential undervaluation of the stock.
Is the Price-to-sales (P/S) ratio useful in finding undervalued companies?
Yes, the Price-to-sales (P/S) ratio is useful in finding undervalued companies. A low P/S ratio may indicate that the company is trading at a discount compared to its revenue, which could be a sign that the stock is undervalued. However, it is important to consider other factors, such as the company's profitability and growth potential, before making an investment decision.
Key Points
How do I calculate price to sales ratio?
PTS Ratio = Stock Price/Revenue Per Share
What Does the P/S Ratio Show?
The P/S ratio reflects how much investors are willing to pay for each dollar of sales generated by the company. This can be used to compare the value of different companies in the same industry.
How Is the P/S Ratio Used?
The P/S ratio is typically used by investors to determine whether a company is overvalued or undervalued. A high P/S ratio may indicate that a company is overvalued, while a low P/S ratio may indicate that it is undervalued.
What Are the Limitations of the P/S Ratio?
The P/S ratio is not always an accurate measure of a company's value, as it does not take into consideration other factors such as profitability, growth potential, and future cash flows. Additionally, it can be difficult to compare companies in different industries, as the P/S ratio for one industry may not be applicable to another.
