Definition

Price to Median PS Value is a valuation metric that compares a company's current price-to-sales (P/S) ratio to the median P/S ratio of its industry or a selected peer group. This helps investors assess whether a stock is overvalued or undervalued relative to its peers.

Formula

Price to Median PS Value = (Current P/S Ratio) / (Median P/S Ratio of Industry or Peer Group)

How to use the valuation method

To use this valuation method, calculate the company's current P/S ratio by dividing its market capitalization by its total sales. Then, determine the median P/S ratio of the industry or peer group. Divide the company's P/S ratio by the median P/S ratio to find the Price to Median PS Value. A value above 1 suggests the company is overvalued relative to its peers, while a value below 1 indicates it may be undervalued.

Which industries it work best in

This valuation method works best in industries where companies have relatively stable sales figures and where the P/S ratio is a common valuation metric, such as consumer goods, retail, and technology sectors.

Which industries it does not apply to and why

Industries with highly volatile sales figures or where sales are not a primary indicator of value, such as financial services or real estate, may not be well-suited for this method. This is because the P/S ratio may not accurately reflect the company's financial health or growth potential in these sectors.

Summary

Price to Median PS Value is a useful tool for comparing a company's valuation to its industry peers. It is most effective in sectors with stable sales and where the P/S ratio is a relevant metric. However, it may not be suitable for industries with volatile sales or where other financial metrics are more indicative of value.