The P/S Ratio, or Price-to-Sales Ratio, is a financial metric used to evaluate a company’s stock price relative to its revenue. It is calculated by dividing the company’s market capitalization (the total market value of its outstanding shares) by its total sales or revenue over a specific period, typically the last twelve months.
The P/S Ratio provides investors with insight into how much they are paying for each dollar of the company’s sales. It is often used as a comparative tool to assess the valuation of companies within the same industry or sector, especially for those that may not yet be profitable. A lower P/S Ratio may indicate that a stock is undervalued in relation to its sales, while a higher ratio might suggest overvaluation.
This ratio is particularly useful in situations where earnings (profits) are not a reliable indicator due to fluctuations or inconsistencies, as sales typically present a more stable reflection of business performance. However, it is important to consider the context of a company’s industry and growth prospects when interpreting the P/S Ratio.
Marvell Technology, Inc. (NASDAQ: MRVL) currently has a price-to-sales ratio (P/S) of 10.5x, which appears to be significantly higher than the average P/S ratio in the Semiconductor industry in the…