Investment Word of the Day: Price-To-Sales-Ratio

Valuing a company is one of the toughest things to do Wall Street. Many investors look at a company's Price-to-Sales ratio to help them determine the value of a company.

The price-to-sales ratio (Price/Sales or P/S) provides a simple approach: take the company's market capitalization (the number of shares multiplied by the share price) and divide it by the company's total sales over the past 12 months. The lower the ratio, the more attractive the investment. Price-to-sales provides a useful measure for sizing up stocks.

For example, The Price-to-Sales ratio of Alphabet ($Google) is 6.76, whereas the Price-to-Sales ratio of GoPro Inc Class A ($GPRO) is 1.56. Which stock is a better buy? You may leave your comments below.

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