Shopify, Amazon, Costco or Alibaba? A Price-to-sales Analysis
By The Good Investors • December 21, 2020
Investors often use the price-to-sales multiple to value a company. This makes sense as sales is a proxy for how much cash the company can generate for its shareholders (there’s no way to generate cash without sales). It is also more useful than price-to-earnings when a company is not yet profitable.
However, in the stock market, there is a disparity between the price-to-sales ratios that various companies have.
Take a look at the table below. It shows the price-to-sales multiples of some prominent “retail” companies around the world.
Company
Current price-to-sales multiple
Shopify Inc (NYSE: SHOP)
51.7
Alibaba Group Holdings Ltd (HKG: 9988)
8.9
Amazon.com Inc (NASDAQ: AMZN)
4.6
Costco Wholesale Corporation (NASDAQ: COST)
0.96
Source: Compilation from Ycharts based on data as of 14 December 2020
As you can see, these four companies trade at remarkably different sales multiples. Costco trades at the lowest price-to-sales multiple of less than 1. This means that if you buy Costco’s shares now, you are paying less than a $1 for every dollar of sales that the company earns....