P/S = Share price / Turnover Per Share
This key figure is used when assessing how much each sales is valued in relation to the share price.
Turnover (Net Turnover) is the company's actual sales.
Good for valuing young growth companies
Newly started fast-growing companies often have negative profit, and have no P/E value as a result.
These companies live on loans and it takes time for the company to generate profit.
In such cases, one can use the alternative valuation measure P/S; this measures turnover (sales).
However, be careful as P/S does not say anything about the company's profitability.
All companies can achieve high turnover, but the company must be able to generate profit to survive.
Things to keep in mind
- A low value is good.
- P/S says nothing about the company's profitability. Therefore, be careful with the P/S valuation.
- P/S varies greatly depending on industry.
- P/S can be used if P/E is negative or missing. If the company does not show profit, then P/S is a good alternative valuation key figure.
- P/S decreases if the company increases its number of shares. (Dilution)