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....
