This valuation method assumes that the stock valuation will revert to its historical mean in terms of Price/Sales Ratio. The reason we use Price/Sales Ratio
instead of Price/Earnings Ratio
or Price/Book Ratio
is because Price/Sales Ratio is independent of profit margin, and can be applied to a broader range of situations.
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.
, Price/Earnings Ratio
, Price/Book Ratio
, Intrinsic Value (DCF Projected)
, Intrinsic Value (DCF)
, Intrinsic Value (DE)
, Graham Number