Why Calculate the Price to Sales Ratio?
The price to sales ratio helps us to know what market capitalization a company is enjoying in the stock market as compared to the total revenue generated by it in the last twelve months. Whenever there is a positive sentiment in the market, what we observe is that stock prices start appreciating without considering the fundamentals of the stocks. So, along with fundamentally strong stocks, the weak stocks also rally a lot. This makes their valuations very expensive and makes them vulnerable to a steep fall once the market changes its track. As a smart investor or trader, it is essential for us to be invested in a cheap stock which has room for further appreciation in price rather than a very expensive stock which cannot rise further. A high price to sales ratio can be an alarming sign for any investors and can also be a reason to quit the stock holding immediately. Many experts prefer to use the price to earnings ratio as well as price to sales ratio for stock research rather than the
