What Is the Price-to-Sales (P/S) Ratio?
The price-to-sales (P/S) ratio compares a company's market value to its revenue. It's a valuation tool that works even when a company isn't yet profitable — a gap the P/E ratio can't fill.
The formula
P/S = market capitalisation ÷ annual revenue (or, equivalently, share price ÷ revenue per share). A P/S of 2 means investors are paying ₹2 for every ₹1 of the company's sales.
When P/S is useful
P/S shines for early-stage or loss-making companies (common in tech and new-age businesses) that have strong revenue but no earnings yet — so a P/E is undefined. Because revenue is harder to manipulate than profit, P/S can also be a more stable yardstick for cyclical companies whose earnings swing wildly.
The caveat
P/S ignores profitability entirely — a company can have great sales and terrible margins. A low P/S isn't cheap if the business never converts revenue into profit. Use it alongside margins and the financials, not on its own.