what is the price to sales p s ratio 
the price to sales p s ratio is a valuation ratio that compares a company s stock price to its revenues it is an indicator of the value that financial markets have placed on each dollar of a company s sales or revenues investopedia candra huffunderstanding price to sales p s ratiothe p s ratio is a key analysis and valuation tool for investors and analysts the p s ratio shows how much investors are willing to pay per dollar of sales it can be calculated either by dividing the company s market capitalization by its total sales over a designated period usually twelve months or on a per share basis by dividing the stock price by sales per share the p s ratio is also known as a sales multiple or revenue multiple like all ratios the p s ratio is most relevant when used to compare companies in the same sector a low ratio may indicate the stock is undervalued while a ratio that is significantly above the average may suggest overvaluation the typical 12 month period used for sales in the p s ratio is generally the past four quarters also called trailing 12 months or ttm or the most recent or current fiscal year fy a p s ratio that is based on forecast sales for the current year is called a forward p s ratio to determine the p s ratio one must divide the current stock price by the sales per share the current stock price can be found by plugging the stock symbol into any major finance website the sales per share metric is calculated by dividing a company s sales by the number of outstanding shares p s ratio mvsspswhere mvs market value per sharesps sales per share begin aligned text p s ratio frac mvs sps textbf where mvs text market value per share sps text sales per share end aligned p s ratio spsmvs where mvs market value per sharesps sales per share as is the case with other ratios the p s ratio is of greatest value when it is used for comparing companies within the same sector the p s ratio doesn t take into account whether the company makes any earnings or whether it will ever make earnings comparing companies in different industries can prove difficult as well for example companies that make video games will have different capabilities when it comes to turning sales into profits when compared to say grocery retailers in addition p s ratios do not account for debt loads or the status of a company s balance sheet that is a company with virtually no debt will be more attractive than a highly leveraged company with the same p s ratio while the p s ratio doesn t take debt into account the enterprise value to sales ratio ev sales does the ev sales ratio uses enterprise value and not market capitalization like the p s ratio enterprise value adds debt and preferred shares to the market cap and subtracts cash the ev sales ratio is said to be superior although it involves more steps and isn t always as readily available examples of the price to sales p s ratioas an example consider the quarterly sales for acme co shown in the table below the sales for fiscal year 1 fy1 are actual sales while sales for fy2 are analysts average forecasts assume that we are currently in the first quarter or q1 of fy2 acme has 100 million shares outstanding with the shares presently trading at 10 per share at the present time acme s p s ratio on a trailing 12 month basis would be calculated as follows acme s p s ratio for the current fiscal year would be calculated as follows if acme s peers which we assume are based in the same sector and are of similar size in terms of market capitalization are trading at an average p s ratio ttm of 1 5 compared with acme s 2 2 it suggests a premium valuation for the company one reason for this could be the 14 3 revenue growth that acme is expected to post in the current fiscal year 520 million versus 455 million which may be better than what is expected for its peers taking that a step further consider apple s fiscal 2020 revenues of 274 5 billion 1 with 16 53 billion in outstanding shares as of sept 30 2021 apple s sales per share are 16 60 2 with a stock price of 145 it would give the company a p s ratio of 8 73 3in comparison google trades with a p s ratio of 6 29 and microsoft at 10 87 suggesting that apple and google may potentially be undervalued or microsoft might be overvalued 45