P/S compares the company's value to its sales — useful when earnings are thin.
▶ Watch: Price-to-Sales Ratio explained in 24 seconds
What it is
The price-to-sales ratio compares a company's market value to its total revenue (sales). Because revenue is positive even when a company is unprofitable, P/S can value firms that have no earnings yet. It says nothing about whether those sales are profitable.
Why it matters
P/S is handy for early-stage, high-growth, or cyclical companies where earnings are negative or volatile. Pitfalls: it ignores costs and margins entirely, so a low-margin business and a high-margin business can look similar on P/S despite very different profit potential.
How it's calculated
Divide total market capitalization by trailing-twelve-month revenue, or divide the share price by revenue per share.
How Quintarthai uses it
P/S sits in the multiples section of the Ratios tab on a stock's company page and is available as a filter in the Stock Screener.
Cross-border note. Revenue recognition is broadly converged under IFRS 15 and US GAAP's ASC 606, so P/S is one of the more directly comparable multiples between TSX and US listings, though currency still applies.
FAQ
When is P/S more useful than P/E?
When a company has no earnings or wildly fluctuating earnings, since revenue stays positive and is harder to manipulate than bottom-line profit.
What is the difference between P/S and EV/Sales?
P/S uses only equity market value, while EV/Sales uses enterprise value, which adds debt and subtracts cash and so accounts for the whole capital structure.
Check your understanding
In which situation is the price-to-sales ratio especially useful compared with the P/E ratio?
Revenue stays positive even when a company is unprofitable, so P/S can value firms whose earnings are negative or erratic; however, it ignores profitability entirely and says nothing about how profitable each sale is.