S&P 500 & Nasdaq Analysis and Trends

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Highest and Lowest Price to Sales (P/S) Ratios
By: Bespoke Investment Group | May 10, 2024

In the S&P 1500, which encompasses the large-cap S&P 500, the Mid Cap 400, and the Small Cap 600, there are just under 1,175 stocks that have positive next-year EPS estimates and trailing 12-month revenues of more than $1 billion. We wanted to see which stocks of this group currently have the highest and lowest forward price to sales ratios. For those that aren't familiar with the price to sales ratio, it's simply a stock's current market cap divided by annual sales (in this case, forward 12-month consensus sales estimates).

Of the stocks 1,150+ stocks that fit our initial criteria, the average stock currently has a forward price to sales (P/S) ratio of 2.59, but the median is significantly lower at 1.73.

Notably, there are 31 stocks that currently have forward P/S ratios greater than 10, meaning market cap is 10x larger than annual sales. That's a very high P/S ratio, and the company better be growing significantly if it's going to maintain that type of multiple. Collectively, these 31 stocks are up an average of 43.34% over the last year! Below is the list for those interested.

As shown, NVIDIA (NVDA) currently has the highest forward price to sales ratio at 18.91! Its shares are up 211.7% over the last year.

Five other stocks have P/S ratios above 15: Fair Isaac (FICO), Eli Lilly (LLY), Cadence Design (CDNS), Intuitive Surgical (ISRG), and Monolithic Power (MPWR). Credit card companies Visa (V) and Mastercard (MA) both have 14x P/S ratios, and a few other very notable large-caps that have 10+ P/S ratios include Microsoft (MSFT), Broadcom (AVGO), and Texas Instruments (TXN). Clearly many of the Tech stocks on this list have seen massive gains since late 2022 from the current AI boom, and investors are still expecting BIG things from them in the years ahead to demand these kind of multiples. They have a lot to live up to indeed.



On the flip side of the equation are the stocks with the lowest price to sales ratios. There are currently 338 stocks with forward P/S ratios that are less than one, meaning their market caps are lower than annual sales estimates. When sales are greater than market cap, companies typically have very low (and usually declining) margins. Many of the names below with P/S ratios of 0.20 or lower come from slow and steady groups like wholesale food distributors, big box retail, or large health care insurance providers.

Whereas the 31 stocks with 10+ P/S ratios are up 43% over the last year, the group of stocks below are only up an average of 6% YoY. While many of these names are and will continue to be on a downward trajectory in the coming years, we're confident that a few will end up turning around their margin situations, especially if we see disinflation. Now go dig deeper and find them!



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