Price to Sales Value Score
The Price to Sales Value Score Method values stocks by applying a historical average of median Price to Sales Ratios to current TTM sales numbers. Investors should always check to ensure that they are comfortable with the estimated historical Price to Sales Ratio before investing based on this valuation.
Many investors prefer to use sales numbers to value stocks since they are slightly more difficult than earnings to "edit" in accounting practices. This Value Score method tends to overvalue companies that have historically traded at very high PS ratios (usually growth firms), and tends to undervalue companies that historically traded at low PS ratios.
In order to help help investors avoid unreasonable valuations, we have set a maximum Price to Sales multiple of 10, even if the company historically has traded at higher values. If the intelligent investor has good reason to apply a higher multiple, they may choose to do so, but we will not publish numbers that high because they are rarely sustained.
Value = (Price/Sales3yr) x (SalesTTM)
(Price/Sales3yr) = The 3 year historical average of annual median Price/Sales Ratios, maximum of 10
SalesTTM = The trailing 12 month sales per share figures