P/S
Stock price relative to revenue. Handy when earnings are negative. A blunt tool \u2014 always pair it with margin analysis.
Formula
Market Cap / Revenue = {marketCap} / {revenue}
Why it matters
Useful when earnings are negative or highly cyclical. Since it ignores profitability, it's a rough measure — two companies with the same P/S but different margins are very different investments.
How to read it
Always pair with gross margin analysis. A 10x P/S company with 80% gross margins (SaaS) is very different from a 10x P/S company with 20% margins (retail). Most mature companies trade at 1-3x P/S.
Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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