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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. Red Hat Inc's revenue per share for the trailing twelve months (TTM) ended in Feb. 2016 was $11.018. Red Hat Inc's 10-Year median P/S ratio is 8.05. Therefore, the Median P/S Value for today is $88.64.
As of today, Red Hat Inc's share price is $71.57. Red Hat Inc's median P/S value is $88.64. Therefore, Red Hat Inc's Price to Median P/S Value Ratio for today is 0.81.
During the past 13 years, the highest Price to Median P/S Value Ratio of Red Hat Inc was 11.18. The lowest was 0.56. And the median was 1.10.
Red Hat 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 8.05.
Red Hat Inc's revenue per share for the trailing twelve months (TTM) ended in Feb. 2016 was 2.584 (May. 2015 ) + 2.7 (Aug. 2015 ) + 2.814 (Nov. 2015 ) + 2.92 (Feb. 2016 ) = $11.018.
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.
Red Hat 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|
Red Hat Inc Annual Data
Red Hat Inc Quarterly Data