The price-to-sales (P/S) ratio measures a company's stock valuation relative to its revenue. Unlike the Price-to-Earnings Ratio (P/E), the P/S ratio can be calculated even for companies with negative earnings, making it a valuable tool for evaluating early-stage or high-growth companies that are reinvesting profits into expansion. It is widely used in the technology, biotech, and SaaS sectors where companies may operate at a loss for years while building market share.

The formula is: P/S Ratio = Market Capitalization / Annual Revenue, or equivalently, P/S Ratio = Stock Price / Revenue per Share. A P/S ratio of 1.0 means investors are paying $1 for every $1 of revenue the company generates. Revenue per share is calculated as Annual Revenue / Shares Outstanding.

For example, if a company has a stock price of $175, 15 billion shares outstanding, and annual revenue of $380 billion, the market cap is $2.625 trillion, the P/S ratio is 6.91x, and the revenue per share is $25.33. Different industries have very different typical P/S ranges. Mature industries like retail often trade at P/S ratios below 1, while high-growth technology companies can trade at P/S ratios above 10. Always compare within the same industry for meaningful analysis.