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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. Hewlett-Packard Co's revenue per share for the trailing twelve months (TTM) ended in Apr. 2014 was $57.77. Hewlett-Packard Co's 10-Year median P/S ratio is 0.80. Therefore, the Median P/S Value for today is $46.22.
As of today, Hewlett-Packard Co's share price is $38.00. Hewlett-Packard Co's median P/S value is $46.22. Therefore, Hewlett-Packard Co's Price to Median P/S Value Ratio for today is 0.83.
During the past 13 years, the highest Price to Median P/S Value Ratio of Hewlett-Packard Co was 3.04. The lowest was 0.28. And the median was 1.21.
Hewlett-Packard Co'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 0.80.
Hewlett-Packard Co's revenue per share for the trailing twelve months (TTM) ended in Apr. 2014 was 13.98 (Jul. 2013 ) + 14.99 (Oct. 2013 ) + 14.55 (Jan. 2014 ) + 14.25 (Apr. 2014 ) = $57.77.
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.
Hewlett-Packard Co'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|
Hewlett-Packard Co Annual Data
Hewlett-Packard Co Quarterly Data