The Price-to-Sales Ratio
Another classic stock metric
It feels like the number of financial metrics is already out of control! But, let’s add one more that is similar to the price-to-earnings ratio (using Apple as our stock).
The top part, like the price-to-earnings ratio, is just market capitalization:
The bottom part of the ratio is revenue:
Combine the two and boom! You have the price-to-sales ratio:
This is a good metric to use in general but particularly if you have a company that has volatile or negative net income. Most of the time, revenue is more stable and can offer a different look at a stock’s relative valuation. Another tool for the analysis toolkit!
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