P/S (Price/Sales)

Price/Sales or P/S is calculated in the same way as Price/Earning except that earnings are replaced by sales. It requires simply taking the market value of the company (or the share price) and dividing it by income/sales (or sales per share).

If the company has sales of two billion and the market value is six billion, P / S will be equal to three. This means that you value the company at three dollars for every dollar traded.

The advantage of P / S over P / E is first and foremost that income is more difficult to “manipulate” than earnings.

Both in Ken Fisher’s 1984 book called Super Stocks and in John O’Shaughnessy’s What Works on Wall Street, P / S was the indicator that created the best return.

The American analysis company Zacks offers both scanning and backtesting for selected indicators. They tested P/S from 2005 to 2015 and the result is as follows:

It is clear from the above figure that low P/S offers quite an impressive result, which is often better than even P/E.