Price-to-Sales (P/S)
Price-to-Sales (P/S)
Market capitalization divided by revenue: what investors pay per dollar of sales. Simple and hard to manipulate, but blind to margins and to debt.
When to use: Use as a quick screen, especially for unprofitable companies, and alongside a margin figure: a P/S of 1 means very different things at a 5% and a 30% net margin.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| PS | P/S Ratio | Price-to-sales multiple | integer |
| MarketCap | Market Cap | Equity market capitalization | $ |
| Revenue | Revenue | Total revenue for the period | $ |
Real-Life Examples
Example 1: Mature Industrial
Market cap $5,000M, revenue $4,000M.
Given
Step-by-Step
Investors pay $1.25 per dollar of sales. At a 6% net margin that is about 21x earnings; the multiple only makes sense next to the margin.
Example 2: High-Margin Software
Market cap $12,000M, revenue $2,500M.
Given
Step-by-Step
Nearly five times revenue. High P/S multiples are sustained only by high margins or fast growth; without both, this is expensive.
Frequently Asked Questions
There is no universal answer. Compare within an industry and against the company's own margin: P/S divided by net margin approximates the P/E ratio, which is a more familiar yardstick.