The Price to Sales Ratio is a valuation metric. The Price to Sales Ratio compares the revenue a company makes to its stock price. Since earnings and revenue are the two biggest drivers of future stock price, the Price to Sales Ratio ranks right up there with the Price to Earnings ratio.
The lower the Price to Sales Ratio the better because it means that the market cap of a company is reasonably priced relative to the amount of revenue it generates. The Price to Sales ratio is calculated by dividing the company’s market capitalization by its total sales over a 12-month period.<< Back to Glossary Index