Price-to-sales divides market cap by trailing twelve-month revenue. It is useful for valuing companies that are not yet profitable, where P/E is undefined. P/S treats all revenue dollars equally regardless of profitability, so a low P/S does not necessarily mean a stock is cheap — a company with a 2% net margin at a P/S of 0.5 may be less attractive than a company with a 25% margin at a P/S of 5.
P/S = Market Capitalization / Revenue (TTM)
GeminIQ divides market cap by TTM revenue from SEC filings.
A: P/S is most useful for early-stage companies that are not yet profitable, where P/E cannot be calculated. It is also useful for comparing companies with similar margin profiles within the same industry. It should always be paired with margin analysis — a low P/S on a low-margin business may not be attractive.
A: SaaS companies: 5-15x is common for high-growth names. Consumer brands: 1-3x. Retail and grocery: 0.2-0.8x. The appropriate P/S depends entirely on the margin profile — high-margin businesses justify higher P/S ratios because a larger share of each revenue dollar converts to profit.
A: Revenue definitions can vary if the aggregator reclassifies items. GeminIQ uses as-filed revenue from SEC filings.