Guys, today I would like to talk about a stock valuation matrix for companies have no profits (earnings).
We talked P/E ratio during our company valuation zoom call to the gold Members couple of weeks ago. If the earnings ( EPS) is negative, you cannot calculate P/E ratio, right?
So, how to evaluate a company has no earnings at all?
Well, there a few ways to do that. The best one for companies have no earning but sales (meaning revanue) is P/S ( price to sales ratio)
So, how to calculate P/S?
P/S = market capital / revenue
So in the case of IQST as of today (20/04/2021)
P/S = (93/44) = 2.11
What does this number say?
Every dollar IQST makes from its sales, values $2.11 in the public market.
So what is the good PS number for an investor to consider?
Well, this is based on the risk level that you would like to take. You have to set a rule for your self. highly subjective to individual’s expectation, I must say.
For a practice, check the PS value of TESLA, NIO, FSLY, GLOP, KO and LKCO
What I consider a good PS?
Anything under 15 PS on a growth stock is a good number to consider in my opinion. Under 10 is better. Anything under 3 is supper good.
So IQST is super cool at this point.
But again this is just an indicator to support our investment decision. Not every stocks can be evaluate with PE OR PS ratios. For an example, tesla’s PS is around 30, meaning, every dollar tesla makes from its sales, investors should to pay $30 if they need to buy tesla’s shares. In theory it is over valued company. Too expensive to buy. But again, that’s not true at all. Tsla cannot be over valued at all. 😉
So if you can see, these indicators cannot be used in all the stocks. But if you don’t know anything about a company, you can quickly check its PS to give you a first impression.
Well, now you can play with this number on your stocks and see what have you got.
Furthermore, we will talk more about PS and other indicators in detail in our next week gold Members zoom call. Watch out.