Other valuation metrics
Several metrics can be used to estimate the value of a stock or a company, with some metrics more appropriate than others for certain types of companies.
Price/sales ratio
Along with the P/E ratio, another common metric used to value stocks is the price/sales (P/S) ratio. The P/S ratio is equal to a company's market capitalization -- the total value of all outstanding shares -- divided by its annual revenue. Because the P/S ratio is based on revenue instead of earnings, this metric is widely used to evaluate public companies that do not have earnings because they are not yet profitable.
Stalwart companies with consistent earnings, such as Walmart, are rarely evaluated using the P/S ratio. Amazon (AMZN +1.00%) has a history of inconsistent earnings growth, so despite its massive size, the P/S ratio is a metric investors still prefer to use to evaluate the online retailer.
In August 2025, for example, Amazon's market cap was $2.34 trillion. Its fiscal year 2024 revenue was about $638 billion. Dividing $638 billion into $2.34 trillion resulted in a P/S ratio for Amazon of 3.67.
Investors who wish to compare the P/S ratios of different companies should be careful to only compare P/S ratios of companies with similar business models. Across industries, P/S ratios can vary greatly because sales volumes can vary greatly. Companies in industries with low profit margins typically need to generate high volumes of sales.
Price/book ratio
Another useful metric for valuing a stock or company is the price-to-book ratio. "Price" is the company's stock price and "book" refers to the company's book value per share. A company's book value is equal to its assets minus its liabilities (asset and liability numbers are found on companies' balance sheets). A company's book value per share is simply equal to the company's book value divided by the number of outstanding shares.
A company's price-to-book ratio is only marginally useful for evaluating companies that have asset-light business models, like software tech companies. This metric is more relevant for evaluating asset-heavy businesses, such as banks and other financial institutions.
It's a (value) trap!
A stock can appear cheap, but because of deteriorating business conditions, it actually is not. These types of stocks are known as value traps. A value trap may take the form of the stock of a pharmaceutical company with a valuable patent that soon expires, a cyclical stock at the peak of the cycle, or the stock of a tech company whose once-innovative offering is being commoditized.
