Price-to-Sales Ratio (P/S)

What is P/S Ratio?

The Price-to-Sales (P/S) ratio divides a company's market capitalization by its annual revenue, indicating how much the market values each dollar of sales. Unlike the P/E ratio, P/S is useful for companies with negative earnings — such as early-stage growth companies — because revenue is always positive. Lower values can indicate undervaluation; higher values reflect growth expectations or pricing power. The ratio varies widely by industry, with high-growth software companies often trading at 10–30x sales and mature industries closer to 0.5–2x.