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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
A valuation ratio comparing a company's stock price to its revenue per share. Useful for valuing companies that aren't yet profitable.
Why It Matters
P/S ratio shines where P/E can't — for unprofitable growth companies. Amazon had no profits for years, making P/E useless, but P/S showed how the market valued its massive revenue. P/S is harder to manipulate than earnings because revenue is the top line. A low P/S relative to peers may signal an undervalued company with strong sales.
Key Points
- Calculate it: Market Cap ÷ Annual Revenue (or Stock Price ÷ Revenue Per Share)
- P/S below 1.0 can signal a bargain; above 10 is considered expensive for most industries
- Compare within the same sector — software companies naturally have higher P/S than retailers
Related Terms
Common Questions
A valuation ratio comparing a company's stock price to its revenue per share. Useful for valuing companies that aren't yet profitable. P/S ratio shines where P/E can't — for unprofitable growth companies. Amazon had no profits for years, making P/E useless, but P/S showed how the market valued its massive revenue.
P/S ratio shines where P/E can't — for unprofitable growth companies. Amazon had no profits for years, making P/E useless, but P/S showed how the market valued its massive revenue. P/S is harder to manipulate than earnings because revenue is the top line. A low P/S relative to peers may signal an undervalued company with strong sales.
Calculate it: Market Cap ÷ Annual Revenue (or Stock Price ÷ Revenue Per Share)
P/S below 1.0 can signal a bargain; above 10 is considered expensive for most industries
Compare within the same sector — software companies naturally have higher P/S than retailers