Price to sales
Also called P/S ratio.
What you pay per dollar of revenue, for companies where profit is not the point yet.
Price to sales = market capitalisation / revenueWhat it means
Price to sales works where price to earnings breaks. A company with no profit has no P/E, but it does have revenue, and the market is plainly pricing something — this puts a number on what.
It is also the multiple least affected by accounting choices, because revenue is the line with the fewest judgements above it. That makes it blunt and comparatively honest at the same time.
Worked example
A market capitalisation of $3,000m on revenue of $1,000m.
- 13,000 / 1,000 = 3.0.
3.0x sales.
Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.
How investors read it
- It is only meaningful within an industry, because it embeds the margin. A software company at 8x sales and a grocer at 0.3x can be priced identically per dollar of profit.
- Pair it with the gross margin. Revenue that keeps 80 cents is worth several times revenue that keeps 20.
- For an unprofitable company, ask what margin the price implies at maturity, and whether anyone in that industry has ever achieved it.
Where it misleads
- It ignores profitability completely, which is the whole question at most companies.
- It ignores debt, since the numerator is equity only.
- Revenue itself is not always comparable — gross versus net presentation moves the multiple several-fold without anything changing.
How Materiality uses it
One of four metrics in the scorecard's Valuation category, carrying 20% of it, alongside forward P/E, EV/EBITDA and free cash flow yield. It is also shown among the headline metrics on a stock page.
The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.
Related metrics
Price to earnings
What you pay per dollar of annual profit.
Revenue
Everything the business charged its customers, before a single cost is taken off.
EV/EBITDA
What the whole business costs, per dollar of pre-depreciation operating profit.
Market capitalisation
What the stock market says the equity is worth: price times shares.
A metric on its own is a number without a business attached to it. Materialitycomputes these from a company's own SEC filings, several years of them at once, and explains what the pattern means rather than leaving you to hold fifteen definitions in your head.