As of 12/20/2024
Indus: 42,840 +498.02 +1.2%
Trans: 15,892 +32.54 +0.2%
Utils: 986 +14.76 +1.5%
Nasdaq: 19,573 +199.83 +1.0%
S&P 500: 5,931 +63.77 +1.1%
|
YTD
+13.7%
0.0%
+11.9%
+30.4%
+24.3%
|
 44,200 or 41,750 by 01/01/2025 16,100 or 17,700 by 01/01/20251,050 or 975 by 01/01/202520,500 or 19,300 by 01/01/20256,100 or 5,775 by 01/01/2025 |
As of 12/20/2024
Indus: 42,840 +498.02 +1.2%
Trans: 15,892 +32.54 +0.2%
Utils: 986 +14.76 +1.5%
Nasdaq: 19,573 +199.83 +1.0%
S&P 500: 5,931 +63.77 +1.1%
|
YTD
+13.7%
0.0%
+11.9%
+30.4%
+24.3%
| |
|
44,200 or 41,750 by 01/01/202516,100 or 17,700 by 01/01/20251,050 or 975 by 01/01/202520,500 or 19,300 by 01/01/20256,100 or 5,775 by 01/01/2025 | ||
My book,
Fundamental Analysis and Position Trading
If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.
$ $ $
This page reviews the results from a study of the price to sales ratio.
The price to sales ratio is a popular fundamental analysis ratio. Values below 1.0 often signal an undervalued company.
Value Line defines sales per share as "net sales divided by the number of common shares outstanding at year-end" and sales as "gross volume less returns, discounts, and allowances."
A study of the price to sales ratio shows that stocks having a low ratio outperform those with a high price to sales ratio 71% of the time.
A second test using almost 1,000 samples shows the same result, with stocks having price to sales ratios below or equal to 1.0 beating the performance of those with ratios above 1.0 from 1992 to 2007.
I used the Value Line investment survey and typed in their sales per share or revenue per share numbers to build a database of 178 stocks with data ranging from 12/30/1991 to 7/11/2008.
After completing the database, I logged the close-to-close price change from 1 to 5 years out, looking forward from the base year. The base year ranged from 1992 to 2006. Not all stocks covered the entire range. Years with no numbers were excluded. The price change measured from the close on the last trading day of each year. Years 2008 and later are not included since the year had not completed as of the time of this study.
The following table shows the results of price to sales ratio (PSR) versus performance over time.
| Base Year | PSR | Median PSR | 1 year | 2 years | 3 years | 4 years | 5 years | Samples |
| 1992 | High | 0.77 | -0.2% | -5.4% | 5.5% | 17.8% | 21.3% | 34 |
| Low | 15.0% | -3.8% | 2.9% | 11.2% | 19.6% | 35 | ||
| 1993 | High | 0.77 | -15.3% | 3.2% | 17.8% | 21.2% | 9.0% | 38 |
| Low | -13.5% | 0.8% | 12.8% | 22.2% | 16.5% | 38 | ||
| 1994 | High | 0.59 | 31.8% | 43.1% | 39.4% | 19.4% | 23.5% | 39 |
| Low | 10.5% | 24.8% | 38.6% | 27.2% | 25.2% | 40 | ||
| 1995 | High | 0.64 | 42.4% | 35.9% | 11.8% | 16.9% | 20.4% | 42 |
| Low | 39.2% | 54.5% | 37.4% | 30.2% | 26.6% | 43 | ||
| 1996 | High | 0.84 | 18.1% | -4.1% | 6.4% | 10.3% | 5.1% | 45 |
| Low | 55.3% | 27.4% | 19.4% | 16.1% | 18.1% | 45 | ||
| 1997 | High | 1.08 | -24.5% | 0.3% | 4.3% | 0.1% | -1.2% | 46 |
| Low | 4.7% | 6.8% | 6.2% | 8.7% | 3.2% | 47 | ||
| 1998 | High | 0.89 | 56.2% | 15.6% | 8.3% | 2.9% | 9.8% | 68 |
| Low | 9.7% | 10.2% | 10.7% | 4.0% | 11.9% | 68 | ||
| 1999 | High | 1.08 | -26.0% | -14.0% | -12.5% | -4.7% | -0.6% | 73 |
| Low | 4.6% | 11.0% | 1.3% | 11.7% | 16.8% | 73 | ||
| 2000 | High | 0.99 | -10.6% | -10.5% | 1.2% | 5.8% | 8.9% | 75 |
| Low | 32.1% | 4.7% | 18.6% | 24.0% | 22.7% | 75 | ||
| 2001 | High | 1.04 | -14.3% | 4.8% | 11.4% | 14.8% | 14.8% | 76 |
| Low | -10.9% | 14.1% | 18.9% | 17.0% | 20.3% | 76 | ||
| 2002 | High | 0.87 | 31.0% | 28.8% | 27.1% | 23.6% | 26.6% | 78 |
| Low | 44.1% | 41.6% | 33.2% | 36.2% | 23.9% | 79 | ||
| 2003 | High | 1.07 | 22.7% | 20.5% | 17.5% | 22.2% | 80 | |
| Low | 24.6% | 17.6% | 21.4% | 9.3% | 80 | |||
| 2004 | High | 1.17 | 27.3% | 19.3% | 26.2% | 83 | ||
| Low | 4.1% | 12.3% | 1.6% | 83 | ||||
| 2005 | High | 1.17 | 9.7% | 20.1% | 86 | |||
| Low | 20.3% | -1.2% | 87 | |||||
| 2006 | High | 1.32 | 26.9% | 88 | ||||
| Low | -19.2% | 89 | ||||||
| Base Year | PSR | Median PSR | 1 year | 2 years | 3 years | 4 years | 5 years | Samples |
Let's take an example using 2006. Stocks with a price to sales ratio above the median 1.32 had gains averaging 26.9% in 2007 compared to a loss of 19.2% for stocks with a price to sales ratio at or below the median. No more results appear for that row because the years had not ended when the study was done. There were 88 to 89 samples that qualified for the study.
If you count the yearly performance of each entry when the price to sales ratio was above or below the median, you will find that stocks with a low price to sales ratio outperformed those with a high ratio 71% of the time (46/65).
I consider this result preliminary, but it does obey common investment knowledge. I intend to expand the database and then publish my findings.
In a second test, I compared stocks with price to sales ratios over 1.0 with those at or below 1.0. The following table shows the results.
| PSR | 1 Year Move | Samples |
| Over 1.0 | 10.7% | 955 |
| Below or equal to 1.0 | 12.1% | 954 |
Using almost 1,000 samples, I found that those stocks with price to sales ratios below or equal to 1.0 outperformed those with ratios above 1.0 from 1992 to 2007 on a 1 year basis. In other words, I computed each stock's price to sales ratio for 1992 and measured the price change from year end 1992 to year end 1993 and then moved to 1993 and started a new calculation, and so on until I ran out of data. Sorting the price to sales ratios and averaging the performance gave the results shown in the table.
-- Thomas Bulkowski
Support this site! Clicking any of the books (below) takes you to
Amazon.com If you buy ANYTHING while there, they pay for the referral.
Legal notice for paid links: "As an Amazon Associate I earn from qualifying purchases."
|
My Stock Market Books
|
My Novels
|
Q: Why are husbands like lawn mowers? A: They are hard to get started, emit foul odors, and don't work half the time.
on 