Price-to-Sales Ratio Calculator
Category: Fundamental & Economic ToolsAnalyze company valuations relative to their revenue, compare against industry standards, and identify potentially undervalued or overvalued stocks
Stock Information
Revenue Information
P/S Ratio Analysis Results
P/S Ratio by Industry Sector
P/S to Margin Analysis
Valuation Scenarios
Fair Value Analysis
Fair value estimate based on current sales per share and sector average P/S ratio.
Margin-Adjusted Value
Analysis based on P/S ratio justified by the company's profit margin relative to sector.
Growth-Based Value
Future valuation based on projected growth in revenue and current P/S ratio.
Valuation Insights
Current Valuation
With a P/S ratio of 4.00, this stock is trading above the Technology sector average of 3.20. This suggests the stock may be slightly overvalued based on its sales.
Margin Analysis
The company's profit margin of 15% is above the sector average. This partially justifies the premium P/S ratio, as companies with higher margins typically command higher sales multiples.
Growth Assessment
The PSG ratio of 0.40 indicates good value relative to revenue growth. Companies with PSG ratios below 1.0 are often considered attractively valued in terms of their growth prospects.
Future Outlook
With projected revenue growth of 10% and a profit margin of 15%, the stock shows reasonable growth potential backed by solid profitability. Investors should monitor the company's ability to maintain growth and margin targets.
Understanding Price-to-Sales Ratio
The Price-to-Sales (P/S) ratio compares a company's market value to its revenue. It shows how much investors are willing to pay for each dollar of sales. This metric is particularly useful for evaluating companies that are not yet profitable, growth companies, or during periods when earnings are temporarily depressed.
Advantages of P/S Ratio
- Less Volatile: Sales figures tend to be more stable than earnings
- Universal Application: Can be used for companies with negative earnings
- Less Susceptible to Manipulation: Revenue is harder to manipulate than earnings
- Early Stage Assessment: Useful for evaluating startups and growth companies
- Cyclical Industries: Provides perspective during industry downturns
Interpreting P/S Values
- Low P/S (< 1): Potentially undervalued, especially with good margins
- Average P/S (1-3): Typically considered reasonable valuation for established companies
- High P/S (> 3): May indicate premium valuation, requires growth or high margins
- Industry Context: P/S varies widely across sectors (tech vs. retail)
- Margin Consideration: Higher margins justify higher P/S ratios
P/S Ratio Formulas
Standard P/S Ratio
PSG Ratio
P/S-to-Margin Ratio
Sales Per Share
Limitations of P/S Analysis
- Ignores Profitability: Does not directly account for margins or cost structure
- Debt Differences: Does not consider varying debt levels between companies
- Revenue Recognition: Affected by different accounting practices for revenue recognition
- Growth Stages: May overvalue high-growth companies with no clear path to profitability
- Industry Variation: P/S ratios vary widely across sectors, making cross-industry comparisons difficult
What this calculates
Price-to-sales — market value against revenue.
- Formula
P/S = market capitalisation ÷ annual revenue- Worked example
- A 3 billion HKD company on 1.5 billion of revenue trades at a P/S of 2.
- When to use it
- For companies with no earnings yet, where P/E cannot be computed.
- Common mistake
- Revenue is not profit. A low P/S on a business that never converts sales into cash is not cheap, it is a warning.