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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. CarMax Inc's revenue per share for the trailing twelve months (TTM) ended in Nov. 2014 was $62.31. CarMax Inc's 10-Year median P/S ratio is 0.65. Therefore, the Median P/S Value for today is $40.50.
As of today, CarMax Inc's share price is $65.80. CarMax Inc's median P/S value is $40.50. Therefore, CarMax Inc's Price to Median P/S Value Ratio for today is 1.60.
During the past 13 years, the highest Price to Median P/S Value Ratio of CarMax Inc was 2.98. The lowest was 0.07. And the median was 0.90.
CarMax Inc'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 0.65.
CarMax Inc's revenue per share for the trailing twelve months (TTM) ended in Nov. 2014 was 13.57 (Feb. 2014 ) + 16.77 (May. 2014 ) + 16.28 (Aug. 2014 ) + 15.69 (Nov. 2014 ) = $62.31.
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.
CarMax Inc'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|
CarMax Inc Annual Data
CarMax Inc Quarterly Data