Financial analysts are always trying to place a company’s valuation into context. Is the business overvalued relative to peers, that you should sell? Undervalued, that you should buy? Is the company’s valuation accelerating or decelerating over time, that whatever decision you reached last year, you may want to revisit now?
Calcbench can help. Let’s do some analysis of our own to show you how it works.
All questions about valuation hinge on a company’s market capitalization. Market cap is, after all, the value that investors place on the company. Calcbench tracks market cap as one of our standardized metrics, so you can find it either on the Company-in-Detail page or the Multi-Company page simply by entering “market cap” into the Search Standardized Metrics text boxes there. (We return the filer’s market cap on the last day of its fiscal year.)
For our analysis, then, we can examine the market cap of the S&P 500 companies for 2014, 2015, and 2016; and how those figures compare to annual revenue for the same years. That gives us a Price-to-Sales (P/S) ratio.
Here is a table of the 10 companies with the largest market caps in 2016, plus their revenue and P/S ratios.
Plain to see that Facebook’s P/S ratio is sky-high compared to all the others. That’s not surprising, given Facebook’s rapid growth in recent years and the market’s usual tendency to fall in love with hot technology stocks. For example, compare Facebook’s valuation to the decidedly unsexy Berkshire Hathaway. Berkshire has almost 10 times as much revenue, but a lower market cap.Now let’s reshuffle the deck and list those S&P 500 companies with the highest P/S ratios, regardless of revenue and market cap.
That’s quite a different lineup. We have five real estate trusts, plus a self-storage company. But despite their high P/S ratios, the companies have low market cap relative to most companies. What’s going on? Probably investment from mutual funds and asset management funds, looking for the high payouts and stable business models that REITs provide. That pushes up the price and makes the stock relatively expensive, but you get steady earnings in exchange.
Finally, let’s measure the change in P/S ratio from 2014 to 2016, expressed as a percentage. Here are 15 companies with the largest increases in P/S—that is, companies whose valuations are rising at an accelerating rate.
Calcbench users can (and we here will) do much more with valuation analysis based on our data. These are only some simple examples. Look for more comprehensive research in the future.
Or log in with:
No Account? JOIN FOR FREE