Price to Sales Ratio (P/S Ratio)

Price to Sales Ratio Formula

What is the Price to Sales Ratio and What Does the Price to Sales Ratio Tell You?

The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues. It is an indicator of the value placed on each dollar of a company’s sales or revenues.

What does it mean by a high Price to Sales Ratio?

A share with a high price to sales ratio compared to its industry may indicate an overvalued share price.

Buying stocks with a high price to sales ratio means putting your money at huge risk. For starters, this may be a huge risk for your money. So don’t go for such investments if not certain.

What does it mean by a low Price to Sales Ratio?

A share with a low price to sales ratio compared to its industry may indicate an undervalued share price.

How to use Price to Sales Ratio?

If the price to sales ratio is lower than compared to its industry average, investors might consider buying the stocks. Better to compare the ratio against the profitable companies in the same industry.

Risk of using Price to Sales Ratio and when not to use Price to Sales Ratio

If the price to sales ratio is lower than compared to its industry average, investors might consider buying the stocks. Better to compare the ratio against profitable companies in the same industry.

Comparing the price to sales ratio with the profitable companies is hard. Because we need to identify profitable companies first.

So never take decisions by only looking at price to sales ratio. Always analyze as possible by considering different factors like other ratios and business news. Always try to use multiple ratios combinedly to get a more clear picture of a company.

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