Price to sales ratio
Also known as: P/S, PS ratio
A ratio compares the price the market puts on a stock to something the company actually produces, its earnings, its assets, or its cash flow. It tells you how expensive a stock is relative to that measure, not just whether the share price is high or low in absolute terms.
The price to sales ratio divides market capitalisation by revenue. Unlike P/E, it can be calculated even when a company has no profit at all, which makes it useful for young or fast-growing companies that are not yet earning money.
The formula is: Market cap / Revenue.
P/S is a much blunter measure than P/E, since it says nothing about how much of that revenue turns into actual profit. A company with a low P/S but very thin margins can still be a poor investment, while a company with a higher P/S but strong and growing margins may be reasonably priced.