Glossary · Valuation
Price-to-Sales (P/S)
The price-to-sales ratio is market cap divided by trailing-twelve-month revenue. It is the most widely used valuation metric for companies that do not yet have steady profits.
How to read it
Read P/S together with margins: a software company with an 80% gross margin and a retailer with a 25% gross margin are worth very different amounts for the same revenue.
Revenue is harder to manipulate than earnings and less volatile, so P/S is a fairly stable way to compare early-stage companies within the same industry.
Common pitfalls
- A high P/S bakes in the assumption that margins will expand substantially in the future. If they can't, no amount of revenue growth will hold up the valuation.
On FinDog
P/S appears under "Valuation" in the Decision Panel on each stock page.
See it on a stock page →Related terms
- P/E RatioThe P/E ratio is the share price divided by earnings per share, which is the same as market cap divided by net income. It tells you how many years of earnings at the current level it would take to earn back the purchase price. TTM means the calculation uses trailing-twelve-month earnings.
- Gross MarginGross margin is (revenue minus cost of revenue) divided by revenue: how much of each dollar of sales is left after direct costs. It reflects the profitability of the product itself and the company's pricing power.
Glossary entries are for investor education only and are not investment advice. About & Methodology · Disclaimer