The value of stocks is a primary consideration for any investor, whether they are just starting out or a seasoned pro. That is why a figure to analyze is the Price to Sales ratio or P/S ratio, sometimes also called the PSR ratio. The formula to figure out this value is the number of shares multiplied by the price per share, then divided by the company’s total sales over the last year. The last year is defined as the previous 12 months of the fiscal year.
Of the many tools that investors can use to evaluate which stocks look favorable to buy, a key one is the Price to Sales Ratio or PSR Ratio. It is also called the P/S ratio or the “King of the Value Factors.” If a low P/S value is shown on a stock then it can indicate a higher potential for profit if the stock bounces back. Some investors look for P/S ratios that are much lower than 1.
The cheapest stocks to buy are those that often have a lot Price-to-Sales Ratio or PSR. The valuation ratio is calculated by comparing a company’s stock price with its revenues. The figure indicates the value on each dollar of a company’s revenues or sales. Another name for a PSR is a “revenue multiple” or “sales multiple.”
The P/B ratio is also called the Price-To-Book ratio. It is a metric used by investors to determine if they would pay too much for the stock were the company to go immediately bankrupt. While it is a crude measurement, it is helpful for determining which companies are undervalued (and overvalued). If the P/B ratio is under 1.0, then it is generally believed that the stock is undervalued. If the ratio is anything above 1.0 then the stock is overvalued. Three stocks with currently low P/B ratios are Tesoro Corporation (NYSE:TSO), Deere & Company (NYSE:DE), and Allegheny Technologies Incorporated (NYSE:ATI).