Price To Sales (P/S) Ratio
Calculate Price-to-Sales (P/S) ratio by dividing share price by sales per share. Value companies based on revenue multiples for growth stock valuation with charts.
About This Calculator
The Price-to-Sales (P/S) ratio (also called the sales multiple or revenue multiple) measures how much investors are willing to pay for each dollar of a company's revenue. It is a widely used valuation metric for evaluating growth stocks, technology companies, and firms that may not yet be profitable. Investors use the P/S ratio to compare companies within the same industry and identify potentially undervalued or overvalued stocks.
The P/S ratio is calculated by dividing the current share price by the sales per share (total revenue divided by shares outstanding). Alternatively, divide the market capitalization by the total revenue over the trailing twelve months. A lower P/S ratio may suggest a stock is undervalued, while a higher ratio relative to industry peers could indicate overvaluation. Unlike the P/E ratio, the P/S ratio works for companies with negative earnings, making it essential for valuing early-stage and high-growth businesses.
Regional Notes
India: The P/S ratio is commonly used by Indian investors analyzing NSE/BSE-listed technology, pharmaceutical, and consumer companies. Revenue data is available from quarterly filings with SEBI and BSE/NSE disclosures. Indian IT services companies like TCS and Infosys are frequently evaluated using P/S multiples alongside P/E ratios.
United States: The P/S ratio is widely followed on Wall Street for valuing NASDAQ and NYSE-listed growth stocks. Many unprofitable but high-revenue companies in sectors like SaaS, biotech, and e-commerce are primarily valued on revenue multiples. Analysts often combine P/S with EV/Sales for a more complete picture including debt.
United Kingdom: UK investors use the P/S ratio for LSE-listed companies, particularly in the technology and consumer sectors. The ratio is less commonly used for established blue-chip companies where P/E and dividend yield are preferred. Revenue data is sourced from annual reports filed with Companies House and the FCA.
Frequently Asked Questions
What is the Price-to-Sales (P/S) ratio?
The Price-to-Sales (P/S) ratio compares a company's stock price to its revenue per share, showing how much investors pay for each dollar of sales. It is calculated by dividing the market capitalization by total revenue over twelve months, or by dividing the share price by sales per share.
How do you calculate the P/S ratio?
The P/S ratio is calculated by dividing the share price by sales per share. Sales per share equals total revenue divided by shares outstanding. Alternatively, divide market capitalization (share price times shares outstanding) by total revenue.
What is a good P/S ratio?
A P/S ratio below 1 may indicate an undervalued stock, while 1-2 is fairly valued, 2-5 suggests slight overvaluation, and above 5 potentially overvalued. However, these ranges vary significantly by industry — technology stocks often trade at higher multiples than retail or manufacturing companies.
What is the difference between P/S and P/E ratio?
The P/S ratio uses revenue which is harder to manipulate than earnings, making it useful for unprofitable or high-growth companies. The P/E ratio uses earnings per share and is more relevant for profitable, mature companies. P/S is commonly used for growth stocks and early-stage companies.
Is the P/S ratio used in India, US, and UK?
Yes, the P/S ratio is a globally recognized valuation metric used across all major markets including India (NSE/BSE), the United States (NYSE/NASDAQ), and the United Kingdom (LSE). It is especially popular for valuing technology and growth companies that may not yet be profitable.
What are the limitations of the P/S ratio?
The P/S ratio does not account for profitability, debt levels, or expenses. A company with high revenue but thin margins may appear attractive by P/S but be a poor investment. It works best when combined with other metrics like P/E, EV/EBITDA, and debt-to-equity for comprehensive analysis.
How does the P/S ratio differ from EV/Sales?
Enterprise Value-to-Sales (EV/Sales) is more comprehensive as it uses enterprise value (market cap plus debt minus cash) instead of just market capitalization. EV/Sales accounts for a company's debt load, making it superior for comparing companies with different capital structures.
Can I share my P/S ratio calculation?
Yes, the calculator saves your inputs in the URL so you can bookmark or share the exact calculation with others. Simply copy the URL after calculating and send it to share your specific P/S ratio analysis.