Definition

The Mean Price to Sales (PS) Value is a financial metric used to evaluate a company's stock price relative to its revenue. It provides insight into how much investors are willing to pay per dollar of sales, averaged across a group of companies or over a period of time.

Formula

Mean PS Value = (Sum of PS Ratios of Selected Companies) / (Number of Companies)

How to use the valuation method

To use the Mean PS Value for valuation, compare a company's PS ratio to the mean PS value of its industry or peer group. If a company's PS ratio is below the mean, it may be undervalued relative to its peers, and if it's above, it may be overvalued.

Which industries it work best in

The PS ratio works best in industries with stable and predictable revenue streams, such as consumer staples and utilities, where earnings may be less volatile.

Which industries it does not apply to and why

The PS ratio is less applicable in industries with high variability in profit margins, such as technology and biotech, because it does not account for differences in profitability.

Summary

The Mean Price to Sales Value is a useful tool for comparing a company's valuation to its peers based on revenue. It is most effective in industries with stable revenues and less effective in those with variable profit margins.