PSR (Price-to-Sales Ratio)
How many times annual revenue the market cap is — used for growth companies with little or no profit.
PSR = Market Cap ÷ Revenue (TTM)
A low PSR can be read as the company being valued modestly relative to revenue; a high one as strong expectations for future revenue growth or margin expansion being priced in.
In plain terms
PSR looks at how many times one year of revenue the company's whole value (market cap) is. The yardstick here is revenue, not profit.
For example, if a company with $1 billion in revenue has a market cap of $5 billion, its PSR is 5x. Even a company still running losses has revenue, so you can gauge its value relative to its size.
What it tells you
Early-stage companies or growth companies investing aggressively deliberately hold profits down (pouring money into R&D and marketing), which makes PER meaningless. PSR lets you see how the market values such a company relative to its top line.
PSR indirectly reflects the market's expectation of what margin (net profit margin) that revenue will eventually turn into profit at. For the same revenue, a company expected to keep more later gets a higher PSR.
Formula
PSR = Market Cap ÷ Revenue (TTM)
What high or low means
A low PSR can be read as the company being valued modestly relative to revenue; a high one as strong expectations for future revenue growth or margin expansion being priced in.
In industries with low net margins (retail, wholesale, etc.), the same revenue produces less profit, so a low PSR is normal. That is why PSR cannot be compared across different industries.
PSR's biggest weakness is that it says nothing at all about how much is kept (margin). A company piling up losses despite huge revenue and a company keeping plenty from the same revenue can show the same PSR. So PSR alone does not separate the two — that shows up when net margin and operating margin sit alongside it.
PSR is commonly used in place of PER for high-growth, loss-making companies, but the very fact that there is no profit and only PSR can be used is sometimes itself a warning sign. If revenue is growing fast while cash keeps draining out, a low PSR is no reassurance (check cash flow and FCF).
How revenue is recognized differs by industry and by company. Brokerage and platform businesses sometimes book the entire transaction value as revenue, so even when the headline PSR looks the same, the "quality" of the revenue behind it can differ.
During the dot-com bubble, Sun Microsystems traded at a PSR (price-to-sales ratio) of more than 10x. After the bubble burst, the company's CEO Scott McNealy drew attention in an interview by turning this question back on investors.
"A PSR of 10x means that even if I paid out all of revenue to shareholders for 10 years without spending a cent of it, you'd just break even. For that, employee salaries, taxes, and R&D would all have to be zero. What exactly were you thinking when you bought at that price?" It is a well-known anecdote that points out how risky it is to pay a high price looking at revenue alone, and it shows the limits of PSR.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see PSR alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.