Why are some investors using price to sales metric for a
Predictable revenue growth, stable margins, capex heavy, high cashflows, low operating leverage, asset heavy, dividend giving pharmaceutical business?
I think P/S is more applicable for high operating leverage, high sustainable sales growth, asset light, soon to be profitable tech businesses.
Given a choice, I would never want to apply P/S metric at all for any kind of business. DCF is a much better metric for stable, high cash flows, dividend giving businesses like consumer & pharmaceutical. Even a simple P/E ratio or EV/EBIDTA would do.
Well, valuation metric is highly subjective but still there should be strong rationale for using a particular metric.
P/S is a vanity metric in a bull market.
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