Hi everyone,
I’m studying the equity valuation chapter for the level 1 exam. I came across the explanation of how a P/S ratio may be more applicable than a P/E ratio in cyclical industries since sales don’t fluctuate as much as earnings do. So here’s the thought that came to my mind. Is there an equivalent to PEG ratio except for P/S? As in (P/S)/g, where “g” represents the expected growth in sales. A “PSG” type of thing?
I couldn’t find anything about it online. It may sound like a stupid question. I’m just being curious.
You can use it, it’s not like these ratios are handed down by the Greek goods of finance, so if something seems useful take it into consideration. It makes a lot of sense to look at growth and margin for a sales multiple.
the only thing I would say to watch out for, because you mentioned cyclical industries, is that in a cyclical company the revenue growth will be dependent on the broader trend, so look at multi year grow when comparing to other companies.
also a price/sales/growth doesn’t have that same above 1 good below 1 bad that a PEG does