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Price/Sales Ratio - A stock's capitalization divided by its sales over the trailing 12 months. A low Price/Sales ratio (for example, below 1.0) is usually thought to be a better investment since the investor is paying less for each unit of sales.
The Price/Sales ratio is a more useful measure of valuation than the P/E ratio for young small-cap companies, simply because many of these companies are not yet profitable, yielding the P/E ratio uncalculatable. A combination of a low Price/Sales ratio, strong sales growth, and rising share price is a strong indication of a young company on the rise.
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