An Analytical Approach to Comparing Actual Vs. 'Fundamental Price-to-Sales' and â€œEnterprise Value-to-Salesâ€ Ratios on the European Stock Market
Dimiter Nenkov Nenkov
International Journal of Economics & Business Administration (IJEBA), 2016, vol. IV, issue 4, 32-49
This study is focused on the â€œprice-to-sales ratioâ€ (P/S) and the â€œenterprise value-to-sales ratioâ€ (EV/S), which are used in relative valuation, in the analysis of companiesâ€™ performance, as well as in the analysis of different sectors and of the market. Special attention is paid to certain important requirements, related to the correct interpretation of market and sector averages of these ratios nowadays, including against the background of their historic levels. The identification, justification and use of the proper market ratios requires in-depth knowledge of their essence and of the fundamentals which drive their levels. In this connection, the logic of the fundamental â€œprice-to-salesâ€ (P/S) and the â€œenterprise value-to-salesâ€ (EV/S) ratios is explained. These two fundamental ratios for the European stock market are calculated and compared with the actual P/S and EV/S. The results of the study indicate that the current levels of the actual P/S and EV/S of the European stock market are much higher than the levels suggested by fundamentals.
Keywords: tock markets; relative valuation; market ratios; P/S ratio; EV/S ratio; fundamentals JEL Classification: G12; G15; G23; G32 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ers:ijebaa:v:iv:y:2016:i:4:p:32-49
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