Price-to-Sale Ratio in English is Price-to-Sale Ratio, or P/S Ratio for short. The price-to-sales ratio is similar to the price-to-earnings ratio and is an important tool used to value stocks. But the two are also very different. The price-to-sales ratio is suitable for evaluating companies with no profits, negative profits, or companies in the growth stage; while the price-to-earnings ratio is suitable for evaluating companies with relatively stable operations. The price-to-sales ratio was developed by investment guru and author Kenneth Fisher, who first described the method in detail in his 1984 book "Super Stocks" and popularized the analytical tool. Version 1.0.0 @Amazon Affiliate Link Its purpose is to eliminate the influence of manipulable data such as company profits or costs, and use the ratio of the company's market capitalization to total revenue (Revenue) to value the company. As the basic analysis data of the company's stock, investors can check the price-to-sales ratio value from Futu moomoo. Futu moomoo offers an account opening and free US stocks like gold. You can view Futu moomoo rewards. The following is the price-to-sales ratio information of Apple stock obtained from Futu moomoo APP: Futumoomoo It can be seen that from 2012 to 2013, the P/E ratio was extremely high (nearly 4,000), but in most years, the P/E ratio was zero. Therefore, using the P/E Ratio to describe Amazon's operating conditions is actually not accurate. However, if you use the price-to-sales ratio (P/S Ratio), it can often be better evaluated. Amazon's P/S Ratio is as follows. During 2012 to 2013, there was no extreme point above. Therefore, the price-to-sales ratio can better evaluate the initial stage of the company than the market profit, or in other words, the stage when the company has no profit or the profit is too small. Data source: Macrotrends If a company has made no profit or even lost money in the past year, unless the company is about to go bankrupt, the price-to-sales ratio can better evaluate the company's stock relative to other companies in the same industry. For example, the company's price-to-sales ratio is 0.7, while its peers' average price-to-sales ratio is 2.0. So if the company can turn things around or continue to operate well, its stock price will rise significantly as its price-to-sales ratio becomes more and more in line with its peers. As another example, in highly cyclical industries such as semiconductors, there are years when only a few companies can generate earnings, but this does not mean that semiconductor stocks are worthless. In this case, investors can use the price-to-sales ratio instead of the price-to-earnings ratio (P/E Ratio) to determine how much they are paying for a company's dollar of sales rather than a dollar of earnings. What are the types of price-to-sales ratios? Price-to-sales ratio usually refers to TTM P/S, but Forward P/S is sometimes used to predict a company's future performance. TTM price to sales ratio TTM price-to-sales ratio, English is Trailing Twelve Month P/S Ratio, which expresses the price-to-sales ratio in the past twelve months. TTM Price-to-Sales Ratio = Market Capitalization ➗ Total Revenue in the Past 12 Months This is the most commonly used price-to-sales ratio, which is calculated using sales, number of outstanding shares, and stock price over the past twelve months to determine the status of a company's stock. forward price to sales ratio The forward price-to-sales ratio, in English, is Forward P/S Ratio. A price-to-sales ratio calculated using forecasted future sales is called the forward price-to-sales ratio. This has certain guiding significance, but the accuracy of the forecast is difficult to guarantee because there are many factors that affect the stock price, so there are inherent errors in forecast valuation and sales. Comparison of price-to-sales ratios across different industries in the United States As of January 2024, the price-to-sales ratio values of various industries in the United States are: Industry Name TTM Price to Sales Ratio Ad 1.82 Aerospace/Defense 2.03 Air transport 0.39 Clothing0.86 Cars and Trucks 2.01 Auto parts 0.63 Bank (Financial Management Center) 2.65 Bank (region) 2.83 Beverages (Alcohol) 3.17 Drinks (soft) 3.69 Broadcast 0.50
Brokerage and Investment Banking 2.28 Building materials1.86 Business and Consumer Services 2.35 Cable 1.28 Chemistry (Basic) 0.85 Chemical Engineering (Diversification) 0.75 Chemistry (Major) 2.19 Coal and related energy 1.24 Computer Services 1.12 Computers/Peripherals 5.28 Building supplies 1.79 Diversification 2.13 Drugs (Biotechnology) 6.44 Drugs (Pharmaceuticals) 4.51 Education 2.07 Electronic equipment 2.63 Electronics (consumer and office) 0.82 Electronics (general) 1.97 Engineering/Architecture 0.93 Entertainment 2.52 Environmental and Waste Services 2.80 Agriculture/Agriculture 0.79 Financial services (non-banking and insurance)4.35 Food Processing 1.41 Food wholesaler 0.28 Furniture/Houseware 0.75 Green and Renewable Energy 3.20 Health products 4.75 Healthcare support services 0.53 Healthcare Information and Technology4.76 House Construction 1.26 Hospital/Medical Institution 0.88 Hotel/Game 3.03 Household Products 3.02 Information Services 1.81 Insurance (General) 2.18 Insurance (life) 0.97 Insurance (Property/Casualty) 1.19 Investment and Asset Management 4.30 Mechanical 2.70 Metals & Mining 2.69 Office equipment and services 0.82 Oil/Gas (Consolidated) 1.26 Oil/Gas (Production and Exploration) 2.23 Oil/Gas Distribution 2.15 Oilfield Services/Equipment0.51 Packaging and Containers 0.90 Paper/forest products 0.80 Strength 1.95 Precious metals 3.65 Publishing and Newspapers 1.16 Real Estate Investment Trusts 6.54 Real Estate (Development) 2.49 Real Estate (General/Diversified) 4.08 Real Estate (Operations and Services) 1.14 Entertainment 1.21 Reinsurance 0.59 Restaurant/Catering 3.41 Retail (automotive) 0.68 Retail (construction supplies) 1.83 Retail (Distributor) 1.40 Retail (general) 1.43 Retail (grocery and food) 0.28 Retail (Online) 7.74 Retail (dedicated line) 0.76 Rubber tires 0.20 Semiconductors 10.20 Semiconductor Equipment 5.08 Shipbuilding and Marine 1.36 Shoes 2.79 Software (Entertainment) 6.01 Software (Internet) 7.63 Software (Systems and Applications) 10.39 Steel 0.86 Telecommunications (Wireless) 2.18 Telecommunications (Equipment) 3.40 Telecommunications (Services) 1.07 Tobacco 3.62 Transport 1.31 Transportation (Railway) 5.28 Trucking 1.55 Utilities (General) 2.25 Utilities (water) 5.29 Whole market 2.35 Data source What is the best price-to-sales ratio? According to the original definition of price-to-sales ratio, the lower the value, the better. The smaller the price-to-sales ratio, it means that investors can pay less than the unit profit income to buy the stock, and the higher the investment value of the stock. Based on advice from Kenneth Fisher Kenneth Fisher is the founder of the concept of price-to-sales ratio. He has the following suggestions for the price-to-sales ratio of a listed company. For non-cyclical and technology stocks: Best case scenario: price-to-sales ratio ≤ 0.75 Worth investing: 0.75＜P/S ratio≤1.5 For cyclical stocks: Best case scenario: price-to-sales ratio ≤ 0.4 Worth investing: 0.4＜P/S ratio≤0.8 Combined with market historical data, it can be concluded that A price-to-sales ratio less than 1 is generally considered an excellent price-to-sales ratio; The price-to-sales ratio is in the range of 1 to 2, which is a relatively good price-to-sales ratio; A price-to-sales ratio above 4 is generally considered too high; The price-to-sales ratio, like most stock indicators, is one of many evaluation indicators. When using it to evaluate stock indicators, you still need to refer to other indicator data. And, most importantly, price-to-sales ratios need to be compared with each other within the same industry, because the overall operating conditions of different industries are different, and cross-industry comparisons are meaningless. For example, Walmart has a price-to-sales ratio of 0.55, while Microsoft has a price-to-sales ratio of 5.85. If we judge based on the fact that a price-to-sales ratio of less than 1 is excellent, it means that Wal-Mart is undervalued and Microsoft is greatly overvalued.
However, a closer look at the two companies' net profit margins explains the difference: Microsoft's net profit margin is 28.45%, while Walmart's is just 3.23%. Microsoft's higher profitability is reflected in its stock price, resulting in a high price-to-sales ratio. The difference between price-to-sales ratio, price-to-earnings ratio, and price-to-book ratio 1. P/E Ratio The price-to-earnings ratio is the ratio of a company's market capitalization to its net profit. The P/E ratio mainly considers the company's operating conditions and is suitable for valuing companies with stable profits or those in a mature stage. These industries are relatively less affected by the market economy, product prices do not fluctuate greatly, and the company's performance and profits are relatively stable. The price-to-earnings ratio can more accurately reflect its operating conditions and stock price value. The P/E ratio is not only suitable for comparing companies in the same industry, but also for comparing between different industries. 2. Price-to-sales ratio (P/S Ratio) The price-to-sales ratio is the ratio of a company's market capitalization to its total revenue. The price-to-sales ratio only considers the company's revenue and does not take into account profits or asset holdings. Therefore, the price-to-sales ratio is suitable for measuring the value of unprofitable or negative-profit companies, as well as cyclical companies and companies in the growth stage. 3. Price to Book Ratio (P/B Ratio) The price-to-book ratio is the ratio of a company's market capitalization to its book value. Book Value refers to the value of a company's assets in its books. It reflects the recorded value of the assets on the company's financial statements, rather than the market value of the assets. Book value is often used to assess a company's net assets or shareholders' equity and can be calculated using the following formula: Book value = total assets − total liabilities The price-to-book ratio is suitable for valuing banks, financial services companies, or insurance companies. Because the higher the net assets of such a company, the higher its ability to create value, and the company's stock price will rise accordingly. The correlation can be well reflected through the price-to-book ratio. FAQ