Price-to-Sales Ratio Defined

By Adam Levy – Updated Jul 3, 2025 at 12:28 PM

Key Points

P/S ratio is calculated by dividing market cap by total revenue, guiding investment decisions.
A low P/S ratio may indicate a stock is undervalued, useful for evaluating companies with no profit.
Comparing P/S ratios within the same industry gives insight into relative stock valuations.

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The words "P/S RATIO." — Image source: Getty Images.

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An infographic showing and explaining how to calculate the price-to-sales ratio. — Image source: The Motley Fool

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That means the P/S ratio is based solely on revenue, not on profits or cash flow. As a result, it's especially useful for comparing the valuations of companies with little or no profit or negative cash flow.

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Cash Flow

Cash flow is how we measure the actual money flowing through a business that can sometimes be hidden behind complexities.

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AMZN Revenue (TTM) Chart — AMZN revenue (TTM) data by YCharts.

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Due largely to how quickly Amazon was increasing its revenue, its price-to-sales ratio fell from a high of about 40 to 1.8. As a result, Amazon looks like a comparative bargain in 2003. (And it was: The stock has appreciated more than 22,000% since then.)

Comparing companies

The price-to-sales ratio can also be used for comparing companies -- including unprofitable companies -- against one another. Here, for example, is a comparison of two cloud-computing solution stocks, Snowflake (SNOW -3.32%) and Datadog (DDOG -2.21%).

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Going beyond the P/S ratio

Calculating the price-to-sales ratio for any given stock is very easy. Just divide the market cap by the company's total revenue. One of the best ways to use the P/S ratio is by comparing it to a stock's historical average. Alternatively, you can use it to compare the valuations of two companies' stocks to help determine which is a better fit for your portfolio. Ultimately, however, you should dig deeper for context around why the market may be trading a stock at a certain P/S ratio to make the best investment decisions possible.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Datadog, and Snowflake. The Motley Fool has a disclosure policy.