The price-to-sales ratio is a convenient tool to gauge the value of stocks incurring losses or in an early development cycle. Stocks like JAKK, AGR, PCB, FIHL and GBX hold promise.

Generally, a smaller price-to-sales (P/S) ratio (i.e. less than 1.0) is usually thought to be a better investment since the investor is paying less for each unit of sales.

Due largely to how quickly Amazon was increasing its revenue, its price-to-sales ratio fell from a high of about 40 to 1.8. As a result, Amazon looks like a comparative bargain in 2003.

The price-to-sales ratio is a convenient tool to gauge the value of stocks incurring losses or in an early development cycle. Stocks like AGR, SMP, GBX and PFE hold promise.

If we have a look at, say, chip designer ARM Holdings, we find a company with a Price to Sales ratio of 4.6, which is about 9 times Tesco’s figure. The reason for the difference is twofold.