PS ratio (Revenue Multiple) by industry

Price-to-sales (P/S) ratio, also known as revenue multiple, is a popular valuation metric used by investors, analysts, and companies to evaluate the performance and current market valuation of a business. It measures a company's market value relative to its annual revenue.

Definition and Calculation of P/S Ratio

P/S ratio is calculated by dividing a company's market capitalization by its annual revenue. This metric is commonly used in industries with low profit margins or negative earnings, where earnings-based metrics like price-to-earnings (P/E) ratio can not be used. P/S ratio is also useful for comparing companies with different capital structures.

The formula for P/S ratio is as follows:

P/S ratio = Stock Price / TTM Revenue per share

Or another way to calculate the P/S ratio is by using the following formula:

P/S ratio = Market capitalization / TTM Revenue

For example, if a particular company has a market capitalization of $1 billion and annual revenue of $100 million, its P/S ratio would be 10.

Average P/S Ratio by Industry

The average P/S ratio varies widely across industries. Here is a table showing average revenue multiples by industries in the US as of Apr 2024:

Industry Average P/S ratio Number of companies
Advertising Agencies 1 22
Aerospace & Defense 1.84 49
Agricultural Inputs 1.27 11
Airlines 0.43 13
Apparel Manufacturing 0.78 17
Apparel Retail 0.71 28
Asset Management 3.12 72
Auto Manufacturers 1.18 15
Auto Parts 0.76 46
Auto & Truck Dealerships 0.5 14
Banks - Diversified 2.95 6
Banks - Regional 2.69 276
Beverages - Non-Alcoholic 1.89 9
Beverages - Wineries & Distilleries 0.77 9
Biotechnology 6.19 504
Broadcasting 0.53 16
Building Materials 3.7 7
Building Products & Equipment 2.03 29
Business Equipment & Supplies 0.77 7
Capital Markets 2.09 33
Chemicals 1.35 17
Communication Equipment 1.38 51
Computer Hardware 2.43 29
Conglomerates 1.4 12
Consulting Services 1.71 16
Consumer Electronics 1.74 12
Credit Services 1.96 44
Department Stores 0.32 5
Diagnostics & Research 3.61 67
Discount Stores 0.85 9
Drug Manufacturers - General 4.96 12
Drug Manufacturers - Specialty & Generic 2.7 48
Education & Training Services 1.48 16
Electrical Equipment & Parts 1.84 42
Electronic Components 2.13 30
Electronic Gaming & Multimedia 2.17 7
Electronics & Computer Distribution 0.47 6
Engineering & Construction 1.03 30
Entertainment 1.42 37
Farm & Heavy Construction Machinery 0.96 22
Farm Products 0.81 18
Food Distribution 0.2 9
Footwear & Accessories 0.99 11
Furnishings, Fixtures & Appliances 0.72 19
Gambling 1.27 11
Gold 2.6 27
Grocery Stores 0.53 10
Healthcare Plans 0.48 12
Health Information Services 4.04 32
Home Improvement Retail 1.18 7
Household & Personal Products 1.73 24
Industrial Distribution 1.44 17
Information Technology Services 1.93 53
Insurance Brokers 2.95 12
Insurance - Diversified 2.05 11
Insurance - Life 1.05 16
Insurance - Property & Casualty 1.44 36
Insurance - Reinsurance 1.05 7
Insurance - Specialty 1.99 16
Integrated Freight & Logistics 1.33 15
Internet Content & Information 2.86 36
Internet Retail 1.22 22
Leisure 1.03 23
Lodging 1.3 9
Luxury Goods 0.65 5
Marine Shipping 1.34 23
Medical Care Facilities 1.1 39
Medical Devices 3.86 102
Medical Distribution 0.7 7
Medical Instruments & Supplies 4.6 45
Metal Fabrication 1.07 13
Mortgage Finance 2.13 17
Oil & Gas Drilling 1.52 6
Oil & Gas E&P 2.03 64
Oil & Gas Equipment & Services 1.15 43
Oil & Gas Integrated 1.11 6
Oil & Gas Midstream 1.71 37
Oil & Gas Refining & Marketing 0.56 18
Other Industrial Metals & Mining 1.52 15
Other Precious Metals & Mining 2.72 12
Packaged Foods 1.19 42
Packaging & Containers 0.98 22
Paper & Paper Products 0.36 5
Personal Services 1.22 10
Pharmaceutical Retailers 0.55 8
Pollution & Treatment Controls 2.42 7
Publishing 0.86 7
Railroads 2.44 8
Real Estate - Development 3.43 9
Real Estate - Diversified 5.83 4
Real Estate Services 2.24 24
Recreational Vehicles 0.67 15
REIT - Diversified 4.75 17
REIT - Healthcare Facilities 5.14 15
REIT - Hotel & Motel 1.89 15
REIT - Industrial 7.78 16
REIT - Mortgage 3.19 35
REIT - Office 2.9 24
REIT - Residential 6.06 19
REIT - Retail 6.31 21
REIT - Specialty 4.71 15
Rental & Leasing Services 1.75 19
Residential Construction 1.16 20
Resorts & Casinos 1.41 18
Restaurants 0.96 41
Scientific & Technical Instruments 3.04 24
Security & Protection Services 2.05 14
Semiconductor Equipment & Materials 4 26
Semiconductors 3.79 64
Software - Application 3.52 191
Software - Infrastructure 3.83 89
Solar 1.55 13
Specialty Business Services 1.38 26
Specialty Chemicals 1.55 46
Specialty Industrial Machinery 2.49 73
Specialty Retail 0.72 40
Staffing & Employment Services 1.14 23
Steel 0.66 15
Telecom Services 1.57 33
Textile Manufacturing 0.71 4
Thermal Coal 1.16 9
Tobacco 1.85 6
Tools & Accessories 1.71 11
Travel Services 1.4 13
Trucking 1.13 11
Utilities - Diversified 2.17 15
Utilities - Regulated Electric 2.09 25
Utilities - Regulated Gas 1.82 14
Utilities - Regulated Water 3.4 12
Utilities - Renewable 2.51 11
Waste Management 2.27 12

The data presented in the table above shows that, the REIT - Industrial industry has the highest average P/S ratio of 7.78, followed by REIT - Retail at 6.31. In contrast, the Food Distribution industry has the lowest average P/S ratio of 0.2, followed by the Department Stores industry at 0.32.

Industries with highest PS ratio

Industries with the highest PS ratio are indicated in the following chart and table. You can use the chart below to categorize industries by sector and see which industries have the highest PS ratio in each sector.
Industry Average P/S ratio Number of companies
REIT - Industrial 7.78 16
REIT - Retail 6.31 21
Biotechnology 6.19 504
REIT - Residential 6.06 19
Real Estate - Diversified 5.83 4
REIT - Healthcare Facilities 5.14 15
Drug Manufacturers - General 4.96 12
REIT - Diversified 4.75 17
REIT - Specialty 4.71 15
Medical Instruments & Supplies 4.6 45

Industries with lowest PS ratio

The chart and table below illustrate industries having the lowest PS ratio. The chart also provides an option to filter the industries by sector so you can explore a breakdown of the industries with the lowest revenue multiple in every sector.
Industry Average P/S ratio Number of companies
Food Distribution 0.2 9
Department Stores 0.32 5
Paper & Paper Products 0.36 5
Airlines 0.43 13
Electronics & Computer Distribution 0.47 6
Healthcare Plans 0.48 12
Auto & Truck Dealerships 0.5 14
Broadcasting 0.53 16
Grocery Stores 0.53 10
Pharmaceutical Retailers 0.55 8

Industries and Sectors

Some industries have higher revenue multiples (or P/S ratios) than others due to several reasons. One of the primary reasons is growth potential. Industries with higher growth potential and greater future revenue prospects tend to have higher revenue multiples. For example, technology companies tend to have higher revenue multiples than other industries because they have a greater potential for future growth and earnings.

Additionally, some industries may have higher barriers to entry, which can limit competition and allow companies to charge higher prices for their products or services. This can result in higher revenues and higher revenue multiples. Conversely, industries with lower barriers to entry may have more competition and lower revenue multiples.

Another factor that can impact revenue multiples is profitability. Companies that are highly profitable may have higher revenue multiples because investors are willing to pay more for their shares. This is because highly profitable companies can generate more earnings per share, which can lead to higher stock prices and higher P/S ratios.

Finally, investor sentiment and market conditions can also impact revenue multiples. During periods of market optimism and high investor confidence, revenue multiples across all industries may be higher. Conversely, during times of market pessimism or economic downturns, revenue multiples may be lower as investors become more risk-averse.

Limitations of P/S Ratio

While the P/S ratio (or revenue multiple) is a useful metric for evaluating the valuation of a company, it also has some limitations. Here are some of the limitations of P/S ratio:

  1. Industry-specific: P/S ratio varies widely across different industries and sectors. Therefore, comparing P/S ratios of companies from different industries may not be meaningful. For example, technology companies typically have higher P/S ratios than companies in other industries.
  2. Does not consider profitability: P/S ratio only considers a company's revenue, but it does not take into account profitability. A company with a high P/S ratio but low profitability may not be a good investment.
  3. Does not consider debt: P/S ratio does not factor in a company's debt levels. A company with high debt levels may have a lower P/S ratio even if it has strong revenue growth potential.
  4. Does not account for future growth: P/S ratio is based on a company's current revenue, but it does not consider its future growth potential. A company with lower current revenue but strong growth prospects may have a higher P/S ratio than a company with higher current revenue but limited growth potential.

It's important to use P/S ratio in conjunction with other valuation metrics and to consider a range of factors when evaluating a company's valuation.

Comparison to Other Valuation Metrics

P/S ratio is just one of several valuation metrics used by investors and analysts. Other metrics, such as P/E ratio and discounted cash flow analysis, can provide a more comprehensive view of a company's valuation. However, P/S ratio is useful for identifying companies with high revenue growth potential and for comparing companies with different capital structures.