Why You Need to Start Using the P/S Ratio for Investing Today
Investing is as simple as buying low and selling high -- but in reality, that's easier said than done. But to disregard valuation when buying a stock would be a big mistake. That's why so many investors use the price-to-earnings ratio as a valuation tool.
That's a good start, but it shouldn't be the only tool in your valuation toolkit. An excellent addition to the P/E ratio is the price-to-sales ratio. Here's why.
Investors are always watching earnings per share, which makes sense. As a stockholder, you are part owner of the company, so earnings per share is, technically speaking, your share of the profits. It is totally logical to ask how much you are paying per unit of earnings. That is basically what the price-to-earnings ratio tells you.
Source Fool.com
