Price to Sales Ratio (P/S) – Beginning Investor Terms
Posted on | January 30, 2010 | No Comments
Price to sales is another metric that has been used to Determine if a stock’s prices is cheap relative to revenue. It is assumed to be better used comparitively within a specific industry. The equation is simple P/S= market cap/revenue for specified period of time such as annually or trailing twelve months (TTM).
Ken Fisher, son of Philip Fisher, in his book Super Stocks showed that a low Price to Sales was predictive of future stock appreciation. He later claimed that it was it no longer useful because of its widespread adoption as an investment strategy.
P/S is not a metric I use, but if you choose to use it, do so with caution. It has some issues.
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