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This valuation method assumes that the stock valuation will revert to its historical mean in terms of Price/Sales Ratio. The reason we use P/S Ratio instead of P/E Ratio or P/B Ratio is because Price/Sales Ratio is independent of profit margin, and can be applied to a broader range of situations.
Median P/S Value is calculated as trailing twelve months (TTM) revenue per share times 10-Year median P/S ratio. Encana Corp's revenue per share for the trailing twelve months (TTM) ended in Dec. 2013 was $7.95. Encana Corp's 10-Year median P/S ratio is 1.61. Therefore, the Median P/S Value for today is $12.80.
As of today, Encana Corp's share price is $23.17. Encana Corp's median P/S value is $12.80. Therefore, Encana Corp's Price to Median P/S Value Ratio for today is 1.81.
During the past 13 years, the highest Price to Median P/S Value Ratio of Encana Corp was 1.75. The lowest was 0.53. And the median was 0.95.
Encana Corp's Median P/S Value for today is calculated as
|Median P/S Value||=||Total Annual Sales / Shares Outstanding||*||10-Year Median P/S Ratio|
|=||Revenue per Share (TTM)||*||10-Year Median P/S Ratio|
10-Year Median P/S Ratio is 1.61.
Encana Corp's revenue per share for the trailing twelve months (TTM) ended in Dec. 2013 was 1.44 (Mar. 2013 ) + 2.7 (Jun. 2013 ) + 1.89 (Sep. 2013 ) + 1.92 (Dec. 2013 ) = $7.95.
It also assumes that over time the profit margin is constant. If a company increases its profit margin to a sustainable level, this value might under-estimate its value. If it has permanent declined profit margins, this may over-estimate the companys value.
Encana Corp's Price to Median P/S Value Ratio for today is calculated as
|Price to Median P/S Value||=||Share Price||/||Median P/S Value|
Encana Corp Annual Data
Encana Corp Quarterly Data