Definition of 'Price-to-Sales'
Price divided by the trailing four quarters of reported sales. Author James O'Shaughnessy has focused investor attention on price-to-sales by showing impressive excess returns in a historical test combining low price-to-sales with superior one-year price performance.The biggest problem in screening on price-to-sales is that low price-to-sales often reflects an industry bias rather than company valuation. The price-to-sales ratio for grocery stores will always be lower than the restaurant industry, for example, because of their lower margins.
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