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
P/S Ratios and What They Reveal About Your Stock’s Valuation
After crunching the numbers using the Price-to-Sales (P/S) Ratio Calculator, you've likely seen your stock’s P/S ratio in comparison to industry averages. But what do these numbers really mean for your trading strategy? Here’s a deeper look at how to interpret your results—and how to factor them into your next move.
What Your P/S Output Tells You
The P/S ratio helps traders understand how much investors are paying for each dollar of a company’s revenue. If your stock has a P/S ratio of 4.00 and the sector average is 3.20, it suggests the stock is priced at a premium—about 25% higher than peers in its sector. Whether that’s justified depends on growth, profitability, and peer comparison.
- P/S Ratio (4.00): Investors are paying $4 for every $1 of revenue. High, but not extreme in sectors like tech or healthcare.
- Sales Per Share ($12.50): Solid revenue generation per share, especially if consistent across periods.
- PSG Ratio (0.40): A low value here points to attractive pricing relative to the company’s growth rate.
- P/S-to-Margin Ratio (0.27): Lower ratios here suggest pricing may be justified by strong profit margins.
Signals to Watch in Your Valuation Output
The calculator doesn’t just spit out a P/S number—it goes a step further, offering valuation scenarios and sector-relative data that can shape your trading approach.
- Fair Value Price: At $40.00, the fair value estimate using the sector’s average P/S suggests a 25% overvaluation if your stock is trading at $50.00.
- Margin-Adjusted Price ($45.00): Adjusts for your company's net margin of 15%. Indicates a smaller gap between price and fair value.
- Growth-Based Price ($46.88): Factors in revenue growth of 10%. Still slightly below the current price, but points to decent long-term potential.
- 1-Year Target ($55.00): Based on projected revenue growth and current multiples, this implies moderate upside—but only if growth materializes.
Risk Factors You Shouldn’t Ignore
A higher-than-average P/S ratio doesn’t necessarily spell trouble—but it does raise questions that deserve attention.
- Overvaluation Risks: Stocks with P/S significantly above the sector average are more vulnerable to pullbacks on weak earnings or macro shifts.
- Profit Margin Mismatch: A high P/S with below-average profit margins can signal unjustified hype.
- Growth Assumptions: If your revenue growth stalls, the premium valuation may rapidly erode.
- Sector Sensitivity: Some industries justify higher P/S (e.g., tech), while others (like utilities or energy) typically trade at lower multiples.
Smart Ways to Respond to Your Calculator Results
Here’s how to use your P/S ratio reading to inform your next move as a trader or investor:
- Compare to Competitors: Use peer comparison to see whether your stock’s pricing is unique or part of a broader sector trend.
- Cross-Check With PEG or EV/S: P/S is helpful, but consider validating with other valuation metrics to round out your view.
- Follow the Margins: If your P/S seems high, dig into whether your company’s margins or growth are truly best-in-class.
- Reassess Entry Points: If you're already holding, current prices may be high for adding more. Watch for corrections or earnings catalysts.
- Look at Forward Data: P/S based on trailing sales doesn’t capture the future. Forward estimates can paint a different picture—especially in growth companies.
Next Steps with Your P/S Ratio Analysis
Whether your P/S reading shows undervaluation or premium pricing, context is key. A “high” ratio might be normal for a fast-growing firm with stellar margins, while a “low” one could flag a bargain—or a warning sign. Combine your calculator output with earnings reports, sector news, and broader market sentiment before taking action.
And if the growth outlook shifts or margins come under pressure, revisit this tool to reassess how the valuation landscape is changing. Metrics like P/S aren’t static—they evolve with the business. Stay proactive, and use each data point as part of a bigger trading story.