Price to Sales Ratio Explained | Finance in 5 Minutes!

Price to sales ratio, also known as PS ratio in the stock market, is simply explained in this 5 minute video! You'll learn the formula and how to calculate the price sales ratio, the difference between forward and trailing (TTM) price-sales ratio, and some limitations when using the P/S metric!

The price to sales ratio is a valuation metric that compares the stocks current price, to their sales numbers. The calculation for this ratio can be found by dividing the stock’s market cap, by their yearly revenue. It tells you how much you are paying in stock price, for each dollar of revenue the company generates. Investors use price to sales to judge if the company is over or undervalued, relative that company’s peers.

This ratio can be especially useful when attempting to value a stock that is not currently profitable, or only slightly profitable, as you only need to look at their current revenue amounts. Some investors even prefer price to sales over other valuation ratios like the PE ratio.

As with most valuation ratios, there are 2 different time frames that you can look at, trailing and forward. The trailing price to sales ratio would rely on financial information that has already been reported, and is using data from the last 1 year of operations. This is usually written as P/S (TTM) in which the TTM part means trailing 12 months. A forward price to sales ratio is referencing analyst’s expectations for the coming year. A forward PS ratio are based on estimates but can be used as a guide for what to expect.

This video is part of my Stock Market Basics playlist.

🕒 Time Stamps!
00:00 Intro
00:22 Price to Sales Ratio Explained
00:44 Comparison to PE Ratio
01:26 PS Ratio Calculations
02:40 Trailing vs Forward
03:12 Example
04:15 Limitations
05:28 Thanks for Watching!

💻 Check out the Stock Market Basics Playlist for more videos like this!

💬 Drop me a comment if you have a question!

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*Disclaimer*
This channel is for entertainment purposes only and is not investment advice. All videos published on this channel are informational in nature and are not intended to give advice or recommendations about any particular security or investment. Before making any investment decisions, I would recommend you to speak to a financial professional that is qualified to provide advice.

[Rynance]

Do you prefer P/S or P/E ratio when evaluating a stock?

[Adrian-cnrk]

I just found this channel, binged all of the videos and came to realize you no longer post. What a shame, you made the content very easy to digest. Thank you for your hard work!

[DisruptiveWealthCreation]

This is an important metric amongst others for deciding on whether you want to invest in a company. Great share.

[GhanYt]

After selling a couple homes in 2022, I'm anticipating a housing crisis in order to buy inexpensively. As a backup plan, I've been thinking about purchasing stocks. What recommendations do you have for the best time to buy? On the one hand, I keep reading and seeing trader earnings of over $500k each week. On the other side, I keep hearing that the market is out of control and experiencing a dead cat bounce. Why does this happen?..

[HonestOne]

Glad I found this channel. Awesome and easy to understand.

[TheGuyFromThatEpisod]

This was insanely helpful! Was not expecting the extra, especially helpful explanation of the trailing 12 months explanation. Thank you!

[stephen-finance]

This is a really great overview! Very helpful metric to look at for analyzing and company.

[DandyFinance]

A great metric to look into, if the business is yet to make profits! Thanks for sharing!

[peteludwik]

Can you pls clarify. The math in the vid suggests 10B/2.5B = 5x. Was that supposed to be 4x? Thanks! Great vids BTW

[CanadianDividendInvesting]

Clear short and to the point, love it!

[christopherjones]

multiplication error at 3:32 mark. P/S TTM should be 4x.

[financewithian]

I use the P/E Ratio, but both are great! I like the animations you use!

[ModestMillennial]

Important metric to look at, nicely explained!

[GrowingFinancially]

Great breakdown as always. Thanks for sharing this information 😀

[DanishGhaziCPA]

Thanks for sharing another valuation metric!

[incomestockinvesting]

Thanks for breaking this down. I have not used the PS ratio but now I have an understanding of it. Nice video. 👍

[dsgnrkevz]

You should create a course. I really like the way you teach and it's easier to understand compared to other yt channel. I'll definitely gonna buy your course if you have one.

[FanaticalFinance]

I'm more of a P/E guy but P/S can be helpful also sometimes. Awesome explanation!

[CatholicSoldierX]

3:50 Trailing Price to sales is 4 not 5.

[Hanzothedach]

Hello Rynance, your youtube videos are very insightful and fun to watch. I hope you make more new video contents. Thank you.