DEFINITION of 'PriceToSales Ratio  PSR'
A valuation ratio that compares a company’s stock price to its revenues. The pricetosales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues. It can be calculated either by dividing the company’s market capitalization by its total sales over a 12month period, or on a pershare basis by dividing the stock price by sales per share for a 12month period. Like all ratios, the pricetosales ratio is most relevant when used to compare companies in the same sector. A low ratio may indicate possible undervaluation, while a ratio that is significantly above the average may suggest overvaluation. Abbreviated as the P/S ratio or PSR, this ratio is also known as a “sales multiple” or “revenue multiple.”
INVESTOPEDIA EXPLAINS 'PriceToSales Ratio  PSR'
The 12month period used for sales in the pricetosales ratio is generally the past four quarters (also called trailing 12 months or ttm), or the most recent or current fiscal year. A pricetosales ratio that is based on forecast sales for the current year is called a forward ratio.
Consider the quarterly sales for Acme Co. shown in the table below. The sales for fiscal year 1 (FY1) are actual sales, while sales for FY2 are analysts’ average forecasts (assume that we are currently in Q1 of FY2). Acme has 100 million shares outstanding, with the shares presently trading at $10.
At the present time, Acme’s P/S ratio on a trailing 12month basis would be calculated as follows –
 Sales for past 12 months (ttm) = $455 million (sum of all FY1 values)
 Sales per share (ttm) = $4.55
 P/S ratio = $10 / $4.55 = 2.20
Acme’s P/S ratio for the current fiscal year would be calculated as follows –
 Sales for current fiscal year (FY2) = $520 million
 Sales per share = $5.20
 P/S ratio = $10 / $5.20 = 1.92
If Acme’s peers – which we assume are based in the same sector and are of similar size in terms of market capitalization – are trading at an average P/S ratio (ttm) of 1.5, compared with Acme’s 2.2, it suggests a premium valuation for the company. One reason for this could be the 14.2% revenue growth that Acme is expected to post in the current fiscal year ($520 million vs. $455 million), which may be better than what's expected for its peers.
As with any other ratio, the P/S ratio cannot be viewed in isolation, since it only presents a very narrow view of a company or stock. This ratio is particularly useful for comparing the valuation of earlystage companies that have revenues but are not yet profitable.

AdvertisingToSales Ratio
A measurement of the effectiveness of an advertising campaign ... 
Price/Earnings To Growth  PEG ...
A stock's pricetoearnings ratio divided by the growth rate ... 
PriceEarnings Ratio  P/E Ratio
A valuation ratio of a company's current share price compared ... 
Revenue
The amount of money that a company actually receives during a ... 
Market Capitalization
The total dollar market value of all of a company's outstanding ... 
Sales Per Share
A ratio that computes the total revenue earned per share over ...

Fundamental Analysis
Ratio Analysis Tutorial
If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios. 
Investing Basics
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Insurance
A Checklist For Successful Medical Technology Investment
Find an investment that will give your portfolio a shot in the arm. 
Markets
How To Use PriceToSales Ratios To Value Stocks
Take a look at how this effective ratio can be influenced by certain critical factors. 
Insurance
Market Capitalization Defined
Find out the differences between mega, large, mid and smallcap stocks and how each suits different investing styles. 
Investing
Venturing Into EarlyStage Growth Stocks
Picking these potential winners is all about sizing up risk. We show you how. 
Fundamental Analysis
Spotting Profitability With ROCE
This straightforward ratio measures whether a company is efficient, moneymaking or neither. 
Forex Education
How To Use The P/E Ratio And PEG To Tell A Stock's Future
While the pricetoearnings ratio is commonly used for assessing stock prices, the price/earningstogrowth ratio offers forecasting advantages that investors need to know. 
Investing
Peer Comparison Uncovers Undervalued Stocks
Learn how to put one of the top equity analysis tools to work for you. 
Markets
Introduction To Fundamental Analysis
Learn this easytounderstand technique of analyzing a company's financial statements and reports.