The price-to-sales ratio is calculated by dividing the company's market capitalization against it's total sales over a 12-month period.
This is an indicator of the value placed on each dollar of a company's sales or revenues.
It's most relevant when used to compare companies in the same industry sector. A low ratio may indicate possible undervaluation, while a ratio that is significantly above the average may suggest overvaluation. Abbreviated as the P/S ratio or PSR, this ratio is also known as a "sales multiple" or "revenue multiple".
This is especially useful for comparing the valuation of early-stage companies that have revenues but are not yet profitable.