Forum Archive Index - January 2000

["Steve Moxham" <moxy@ihug.co.nz>]

Hi Paul,

Use the 'revenue' figure for the last 12 months. You'll find this in the
companies annual report.
You can get the revenue figures for every company listed on the NZSE through
the Datex website or in a copy of their annual Investment Yearbook.
Take the market value of the company (share price multiplied by shares on
issue) and divide by the annual revenue figure.
According to this method a stock is undervalued if the P/S ratio is below 1,
although there are anomalies with companies that produce miniscule margins.
Anything above a P/S ratio of 3 and you are playing with fire and risking
loss. I have seen US tech stocks with P/S ratios of more than 500!!!
The table and excerpts below show the relationship between the P/S, P/E, and
profit margin of a company. It is taken from "Super Stocks" by Kenneth L.
Fisher. (an excellent book by the author of the P/S ratio.) You can buy this
from the "Market Analysis" newsletter, and I'm sure Amazon or Barnes and
Noble will stock it.

"It represents what price-earnings ratios various price sales ratios and
profit margins equate at".

                        Profit Margin
            5%     7.5%     10%     12%
P/S
0.25     5        3.33       2.5       2.08
1.00    20     13.33       10       8.33
3.00    60        40          30        25

"When a company sells at 1.0 times sales and earns 7.5% after tax, it is the
equivalent to a price earnings ratio of 13.33.
What is the bottom line? To buy stocks successfully, you need to price them
based on causes, not results. The causes are business conditions - products
with a cost structure allowing for sales. The results flow from there -
profits, profit margins, and finally earnings per share."

[Excerpt from Super Stocks]

 I hope this helps.


Original Message -----
From: Paul Walker <pwalker@ps.gen.nz>
To: <sharechat@sharechat.co.nz>
Sent: Tuesday, 4 January 2000 04:53
Subject: [sharechat] P/S Ratio


> -- [ From: Paul Walker * EMC.Ver #2.5.02 ] --
>
> I've been doing some reading over the break about share selection
techniques
> .
>
> One technique that I've come across is to use the Price/Sales Ratio. It's
> suggested that it is even more reliable as an indicator than the P/E
Ratio.
>
> My problem is: How do you calculate it - what is the Sales figure that
> should be used; and where do you get the Sales info from.
>
> Can anyone help me please.
>
> Thanks
> Paul
>
>
> --------------------------------------------------------------------------
> To remove yourself from this list, email sharechat-request@sharechat.co.nz
> with "unsubscribe" in the body of the message, or use the unsubscription
> form at http://www.sharechat.co.nz/forum.html.
>


--------------------------------------------------------------------------
To remove yourself from this list, email sharechat-request@sharechat.co.nz
with "unsubscribe" in the body of the message, or use the unsubscription
form at http://www.sharechat.co.nz/forum.html.