The price-to-sales ratio compares a company’s stock price to its revenues. It shows what the market is willing to pay today for a stock based on its past or future sales.

The P/S ratio is calculated by dividing the company’s fully diluted market capitalization by its total sales.

The ratio was first proposed in the 1980s as a way to evaluate high-growth-potential, high-R&D companies and has been widely used for such companies ever since then. These companies often have no positive earnings, so one can use P/S instead of P/E.

The PS ratio helps investors determine the market value of a stock as compared to the revenues. A high PS without significant Sales Growth could mean that a stock's price is high relative to sales and possibly overvalued. Conversely, a low PS with high Sales Growth might indicate that the current stock price is low.

Formula

Pr2Sales = (SharesFD * Price) / Sales

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