A stock's average price/sales ratio over the trailing five years. It is calculated by adding the price/sales ratios each fiscal year for the past five fiscal years, then dividing the sum by five. If price/sales for a given year exceeds 35, its value is capped at 35 when calculating the average.
Origin
The company’s most recent price is received from ComStock, a division of Interactive Data Corporation. Sales information is found in the annual income statement. Total shares outstanding is taken from the company’s most recent 10-K form.
Benefit
By looking at the 5 Yr Average P/S alongside the P/S Current, you can quickly tell whether a company is currently valued above or below its historical average P/S.
For the Pros
Use the following formula to look for companies that trade at a discount to their historical valuations. The same equation can be used with Price/Book, Price/Earnings and Price/Cash Flow:
PS Current / PS 5-Year Average