Price-to-Sales Ratio
Market cap divided by annual revenue. Useful for valuing unprofitable high-growth companies where P/E doesn't work.
Formula
P/S = Market Cap / Annual Revenue
How to Interpret
Below 2x is generally cheap. 5-10x is common for quality SaaS. Above 20x means extreme growth expectations. Unlike P/E, P/S works for unprofitable companies and isn't distorted by accounting choices.
Why It Matters
When a company has no earnings, P/E is useless. P/S fills the gap. It's particularly useful for comparing high-growth SaaS companies or early-stage businesses where profitability is being deliberately sacrificed for growth.
R40 does not publish Price-to-Sales Ratio per company. This entry explains the measure; the metrics R40 tracks and ranks are listed on the indicators index.