Price-to-sales explained: what a dollar of revenue is worth, and why the margin decides it

Price-to-sales compares what the market pays for a company with how much the company sells. Divide its market value by its revenue over the past twelve months and you have it: Microsoft, worth $3,962.9bn against revenue of $331.84bn, trades at 11.94 times sales. It is one of the four measures our valuation score votes on, and it has one real advantage over the P/E — revenue exists even when profit does not. That advantage is also its weakness, because a dollar of revenue can carry a lot of profit or none at all. All figures below are trailing twelve months to each company's latest filing, with market values at the 14 October 2026 close.

The range, from 83.86 to 0.26

A spread of more than three hundred to one between the first and last rows cannot mean that one share is three hundred times better value than another. It means the same ratio is measuring something different for each company, and the two columns beside it explain most of the difference.

The equation behind the multiple

Price-to-sales is the P/E multiplied by the net margin. That follows straight from the definitions: price over earnings, times earnings over sales, leaves price over sales. Our figures bear it out. Meta's P/E of 27.78 times its net margin of 29.84% gives 8.29, exactly its price-to-sales. Coca-Cola's 28.86 times 27.8% gives about 8.0, against a measured 8.01. Small gaps like that come mainly from share counts, because market value uses the latest number of shares while earnings per share uses the average over the year.

The equation is most useful when it is turned around. Put UnitedHealth next to Coca-Cola: their P/Es are close, at 25.43 and 28.86, yet Coca-Cola trades at 8.01 times sales and UnitedHealth at 0.79, about a tenth as much. Nearly all of that gap is margin. Coca-Cola keeps 27.8 cents of net profit from each dollar of sales; UnitedHealth keeps 3.14 cents, largely because a health insurer pays out most of its premiums as claims for care. On earnings, the market values the two at similar multiples. On sales, one looks ten times dearer — and neither view is wrong, they simply answer different questions.

A low multiple: cheap, or thin margins?

A low price-to-sales says little about value until you check the margin behind it. Ford trades at 0.26 times sales and General Motors at 0.37, the lowest figures in the table, and their net margins explain why: General Motors kept 2.12% of its sales as profit, and Ford lost money. Investors pay little for a dollar of car sales because so little of it reaches shareholders. Our study of carmakers looks at what is behind those margins.

The same reasoning applies across a single aisle of the supermarket. PepsiCo, at 1.79 times sales, looks far cheaper than Coca-Cola at 8.01, but its net margin of 11.09% is well under half of Coca-Cola's. Our consumer staples study shows how two such different businesses still earn similar returns on capital.

A high multiple: what the price assumes

At the other end, a high price-to-sales is a statement about the future. Palantir trades at 83.86 times sales. Even if its shares were valued at 30 times earnings — close to Microsoft's 29.73 — today's price would need net profit of nearly three times its revenue. No operating business can keep more profit than it sells, so at that earnings multiple the price is justified only if revenue becomes many times larger than it is now. Its revenue grew 32.92% a year over the last three years, which is fast, but the multiple asks for that to continue for a long time.

Nvidia shows the contrast. It trades at 17.6 times sales — a fraction of Palantir's multiple — on revenue about fifty times as large, with a net margin of 63.66% and three-year revenue growth of 100.05% a year. Tesla trades at 14.01 times sales, but with a net margin of just 3.11%, so its price assumes far higher profits than it earns today; our P/E guide works through what its earnings multiple implies.

When price-to-sales is all there is

For a company that loses money, the P/E disappears and price-to-sales is often the only multiple left — which is why we print it for loss-makers and leave their P/E blank, as the numbers we refuse to print explains. But it needs reading with the losses beside it. Lucid, at 0.84 times sales, looks cheaper than Rivian at 2.92. Yet Lucid's net margin is −249.21%, meaning it lost about two and a half dollars for every dollar it sold, against Rivian's −54.95%. A low multiple on sales that lose money is not a bargain in itself; it more likely reflects doubt that those sales will ever become profitable.

What price-to-sales leaves out

Three gaps are worth keeping in mind. First, debt: price-to-sales uses the market value of the shares alone, so a company carrying heavy borrowing looks cheaper than it is. Measures built on enterprise value, which adds debt and subtracts cash, fix that — see our guide to EV/EBITDA. Second, what counts as revenue: an insurer's premiums largely pass through to doctors and hospitals, and a bank's revenue is defined after its interest costs, so neither compares cleanly with a manufacturer's sales; for banks, price-to-book is the better yardstick, as our bank stocks guide explains. Third, cycles: revenue at oil producers and memory-chip makers swings with prices, so a sales multiple taken at a peak or a trough tells you mainly where the cycle stands.

How our score uses it

Price-to-sales is one of four valuation votes, alongside EV/EBITDA, price-to-book and free cash flow yield. The cheaper company on each measure wins a vote, and the valuation factor goes to whichever company wins more of them. Because a sales multiple is only one vote among several, a company that is cheap on sales only because its margins are thin usually has to be cheaper on other measures too before it takes valuation. The six-factor score explained sets out every rule.

Read well, price-to-sales is a quick first question rather than an answer: compare it only within an industry, divide it by the net margin to get close to the P/E, check the debt, and ask what margin and growth the price assumes.