The price-to-sales (P/S) ratio divides a company's market value by its total revenue over the last twelve months — how many dollars investors pay for each $1 of sales. A P/S of 3 means the market values the business at three times its annual revenue.
The P/E ratio needs positive earnings to mean anything, and many young, fast-growing companies deliberately run at a loss while they scale — so their P/E is undefined or useless. Revenue is almost always positive and harder to distort with accounting choices, which makes P/S a common way to value early-stage growth companies and to sanity-check a stock whose earnings are temporarily depressed.
Live example: AAPL's current price-to-sales ratio is 9.2 — the market values the company at about $9.2 for every $1 of its annual revenue. See the full AAPL forecast for how this sits alongside its other valuation multiples and the quantum model's price forecast.
P/S completely ignores profitability. A company selling at a razor-thin margin is worth far less than one at a fat margin, yet on P/S alone they can look identical. A "low" P/S is only meaningful next to the company's margins, growth, and sector peers — a software firm and a supermarket trade at structurally different P/S levels for good reason.
There's no universal number — it's structural to the industry and the company's margins and growth. High-margin software trades at a high P/S; a low-margin retailer much lower. Compare against sector peers, not the whole market.
When a company has negative or depressed earnings, P/E is undefined or misleading but revenue is still positive — so P/S is a common tool for valuing early-stage or loss-making companies.
It ignores profitability entirely. Two companies with the same revenue can be worth wildly different amounts depending on margins, so P/S must be read alongside margin and growth.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.