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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. Microsoft Corp's revenue per share for the trailing twelve months (TTM) ended in Dec. 2014 was $11.21. Microsoft Corp's 10-Year median P/S ratio is 4.17. Therefore, the Median P/S Value for today is $46.75.
As of today, Microsoft Corp's share price is $40.40. Microsoft Corp's median P/S value is $46.75. Therefore, Microsoft Corp's Price to Median P/S Value Ratio for today is 0.87.
During the past 13 years, the highest Price to Median P/S Value Ratio of Microsoft Corp was 12.31. The lowest was 0.66. And the median was 1.72.
Microsoft 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 4.17.
Microsoft Corp's revenue per share for the trailing twelve months (TTM) ended in Dec. 2014 was 2.44 (Mar. 2014 ) + 2.8 (Jun. 2014 ) + 2.78 (Sep. 2014 ) + 3.19 (Dec. 2014 ) = $11.21.
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.
Microsoft 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|
Microsoft Corp Annual Data
Microsoft Corp Quarterly Data