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P/S ratio (price-to-sales)

A company's market cap divided by its yearly revenue.

FundamentalsBeginner

Definition

P/S is used for companies with little or no profit yet, such as young software or biotech firms. It tells you how much investors pay for each dollar of sales.

Formula

P/S = market cap / revenue (last 12 months)

Watch out for

Revenue says nothing about profitability. A high P/S needs high growth and eventual strong margins to make sense.

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