Price-to-Sales Ratio (P/S)
A revenue-based equity multiple that omits margins, capital needs, debt, dilution, and cash conversion.
The price-to-sales ratio (P/S) compares equity market value with revenue, or share price with revenue per share. It can be calculated when earnings are negative, but it ignores profitability, capital intensity, leverage, dilution, taxes, and the quality and recognition of revenue.
Frequently Asked Questions
Does a low P/S mean a stock is cheap?
No. A low multiple may reflect thin or negative margins, weak cash conversion, customer concentration, debt, dilution, cyclicality, or deteriorating revenue quality.
What happens when revenue is zero or negative?
At zero revenue the ratio is undefined, and negative reported revenue generally does not support conventional P/S interpretation.
Is revenue harder to manipulate than earnings?
Revenue can be less affected by some expense estimates, but recognition timing, gross-versus-net presentation, returns, variable consideration, acquisitions, and channel practices still matter.
Can P/S be compared across sectors?
Only with caution. Gross margins, operating expenses, capital intensity, working capital, growth durability, and revenue definitions vary materially.