Price-to-Sales (P/S) Ratio Explained

The price-to-sales ratio (P/S) compares a company’s market value to its revenue.

P/S = market cap ÷ annual revenue

A P/S of 3× means investors pay $3 for every $1 of yearly sales.

Why use it?

The P/E ratio breaks down when a company has no profits — early-stage or fast-growing firms often run at a loss by choice. P/S still works, because almost every company has revenue. That makes it the go-to multiple for young growth companies.

How to read it

• Under 1–2× — often considered cheap (common for retailers and low-margin businesses).
• 10×+ — rich; the market expects rapid growth.

The big caveat: sales aren’t profit. A company with thin gross margins deserves a lower P/S than a high-margin software firm, because each sales dollar turns into far less cash. Always pair P/S with a look at margins, and compare within the same industry. Filter and sort by P/S in the screener .