What is Price-to-Sales Ratio (P/S)?
The price-to-sales ratio is a valuation multiple that compares market capitalization to total revenue. It is particularly useful when valuing companies that are not yet profitable or have very volatile earnings, because revenue is more stable than net income.
How It Works
- Formula: Market cap / Total revenue, or Share price / Revenue per share
- Lower P/S suggests cheaper valuation; meaning depends on industry margins
- Works well for early-stage, growth, and cyclical companies
- Doesn’t account for profitability — high P/S in a low-margin business is a red flag
- Often compared with EV/Sales for an apples-to-apples view across capital structures
Saudi Context
Saudi tech and e-commerce stocks listed on Tadawul (and on Nomu, the parallel market) often trade at high P/S multiples reflecting growth expectations. The ratio is a quick screen alongside EV/Revenue and EV/EBITDA.
Example
A Saudi e-commerce startup has revenue of SAR 200M and a market cap of SAR 1,200M. P/S = 1,200 / 200 = 6. A traditional retailer with the same revenue trades at SAR 400M market cap — P/S of 2 — reflecting slower growth and thinner margins.