The price-to-sales ratio (Price/Sales or P/S) is calculated by taking a company's market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company's total sales or revenue over the past 12 months. The lower the P/S ratio, the more attractive the investment. In a highly cyclical industry such as semiconductors, there are years when only a few companies produce any earnings. This does not mean semiconductor stocks are worthless. In this case, investors can use price-to-sales instead of the price-earnings ratio (P/E Ratio or PE) to determine how much they are paying for a dollar of the company's sales rather than a dollar of its earnings. If a company's earnings are negative, the P/E ratio is not optimal since it will not be able to value the stock because the denominator is less than zero. price-to-sales ratio gives a way to value companies that aren’t profitable. But this is changing as high-tech companies become more of the norm.
