Glossary

The Price-to-Sales ratio (P/S ratio) is a financial valuation metric used to compare a company's market price 🏷️ to its total revenue.

It is calculated by dividing the company's market capitalisation (stock price multiplied by the number of outstanding shares) by its total revenue (sales) over a specific period. A low P/S ratio may indicate that the stock is undervalued, while a high ratio may suggest overvaluation.

For example, if a company has a market capitalisation of $20 million and annual revenue of $10 million, its P/S ratio would be 2 ($20 million / $10 million).

Fun fact: The P/S ratio is particularly useful when analysing companies with little or no earnings 📊, as it can provide insight into the company's value based on its sales performance. This ratio is often used for high-growth companies, especially in the technology sector, where earnings might not yet be positive but sales are rapidly increasing. 🚀