Stock Screening Education
Screening By P/S RatioScreening for Price to Sales Ratio (P/S)
The price to sales ratio, or P/S, is one of the criteria that investors can use to determine the value of a company. P/S ratios are usually used in conjunction with other criteria, such as price-to-earnings, or P/E, since the ratio doesn't take into account expenses or debt and can vary greatly by industry.
The P/S ratio uses the market capitalization of a company and divides it by the past 12 months' revenues. A low price-to-sales ratio is preferred as that means an investor is paying less for each sale.
For example, say you had a company XYZ with a market cap of 100 million shares priced at $20 per share. Its market cap would be $2 billion. Company XYZ had sales over the past 12 months of $500 million. Its P/S ratio would be $2 billion divided by $500 million, or 4.0. A price-to-sales ratio under 1.0 is considered a deep value company.
How To Use
You can screen for the P/S ratio on the customer screener. The P/S criteria is listed in the "popular items" category seen in the snapshot below.
Improving Your Value Screening Results
The Custom Screener has plenty of excellent tools that can assist investors in identifying winning stocks. However, investors can use the more advanced capabilities of the Research Wizard screening program to further narrow their approach by choosing among 650 traits. More importantly, investors can then back test any given strategy to gauge its historical performance in different market environments.
For example, Research Wizard has the capability to target the ten cheapest stocks with the lowest P/S ratio. Investors can search for the P/S ratio in the top 10%, the bottom 10% or the Top 5 in each industry. It can also compare the P/S ratio in comparison to an industry, sector or the S&P 500, as you can see in the snapshot below.
The Custom Screener and the Research Wizard both provide powerful tools that allow the investor to wade through over 8,000 stocks to identify those stocks that fit into any type of investing strategy, including one that involves the price-to-sales ratio.