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Price/Sales Ratio: Explanation and Backtest

1 431 views | 4 Feb. 2015

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1. Price/Sales Ratio is defined as simply the market capitalization of a company (i.e . what it would cost to buy up all its outstanding shares) divided by the trailing twelve months of sales.

2. Advocates of price/sales believe it is superior to price/earnings because earnings can be more manipulated based on how expenses are calculated and recorded, and because companies may have greater volatility in earnings due to one-time expenses. Thus, a decline in earnings might not be cause for concern, whereas a decline in sales might be.

3. A backtested study conducted by FatPitchFinancials.com revealed that stocks in the lowest 20% of price/sales ratio significantly outperformed the S&P 500 from 2000-2013 (see full study).

4. The general recommendation when using value metrics is to use multiple metrics to refine your analysis; for instance, price/sales can be combined with return on equity, price/earnings, cash/debt, as well as various growth rates to learn more about companies and their potential.

Noah Mathews

Does TTM of sales refer to the previous twelve months including or excluding the current month? In other words if you are in January 2016, does TTM of sales include January 2016?

Price/sales ratio

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Introduction to the Price-to-Sales Ratio

8 694 views | 23 Nov. 2018

This video explains what

This video explains what the Price-to-Sales Ratio is and why you might choose to use it as a valuation metric instead of P/E or PEG ratios.

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Related Videos | Watch Next

Introduction to Valuation Ratios and the P/E ratio - https://youtu.be/BjgBxOybAV8

Introduction to the PEG Ratio - https://youtu.be/2ASq62zUvws

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Kibson

Hehehe am first

Allen Bates

lovely video

Jason Oppong

Nice video. Would you be looking at companies Price (market cap) over the same interval as sales e.g. a year and how do you account for companies issuing more shares or buyback shares

Price/sales ratio

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Price to sales ratio - Why I'm not buying Shopify now

162 views | 22 Jun. 2019

In this video I talk about

In this video I talk about the price to sales ratio metric:

- Initially didn't like price to sales ratio... but now tie it to operating margin

- Good for companies not yet profitable

- Revenue/Sales cant be manipulated generally

- Roughly divide operating margin by a quarter for reasonable price to sales ratio as rule of thumb ... assuming some revenue growth 10% and above

- Visa example

- Eyeing Shopify, great company, haven't been able to pull the trigger

- Facebook and Shopify case study

- Portfolio update

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Hassan Investing

Nice! I sold my Shopify shares at 155. I made around 50 percent profit.

Money Growth Academy

Great analysis and evaluation. You've got a great detailed channel I look forward to seeing you grow ??

Creative 7 Inc

awesome! crazy to see the huge growth on Shopify, thanks for sharing

Royalty motivation. R.M

KEEP UP THE GREAT WORK!

Economic Lifestyle Investing

I remember when Shopify was still $150 and debated on not getting it, now look at it lol

Stock Investing & Trading 101

Nice video man. I just found your channel and Subscibed. Thats something i definatley need to work on is balance sheets and fundamentals.

The Helpful Entrepreneur

Markets really have been doing well especially this past week. Great to see! ? Like your channel so I just Subscribed!

Investing And Trading - Adventures and Us

Dang! Look at that growth and stock price on shopify

The Starter

Good analysis. Shopify is great though

The Investors Herald

Keep up the content- great video!

Learn about stocks

Shopify is my favorite stock for call options.

Lisa777 There is a better way

Very nice share!! Hugs

Passive Income Tom

Great explanation my friend! ?

Karebear

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Victor-VE Univers

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Bran Shingleton

I like your analysis,Come check out my channel sometime. I subbed to your channel!

Lev Kris Coins

Awesome video ?