Price-to-sales averages 33% average annual return

Price-to-sales (P/S) is a quintessential example of the value anomaly. What you have here is simply the current stock price divided by the sum of the 4 most recent quarterly sales per share figures. The 4 quarter sum is needed to avoid seasonality

issues with the sales numbers. Lower P/S numbers are better since you want to pay a lower price per unit of sales. This is a simple yet effective strategy for finding profitable trades.

Using 4 week holding period returns, this strategy has produced a backtested annual average return of 33% from 2002-2010. Here are the annual details:

P/S S&P 500

2002 -14% -22%

2003 92% 29%

2004 32% 11%

2005 11% 5%

2006 25% 11%

2007 -16% 6%

2008 -52% -37%

2009 182% 26%

2010 37% 15%

Avg 33% 5%

Furthermore, the compounded annual growth rate for this time period is 19% and the backtested results of $10,000 invested at the end of 2001 are below:

Price-to-sales is a strategy that can be simulated in Zacks’ Research Wizard. Please click here to learn more about the screening and backtesting power of a stock research system built for the individual investor. To learn more about other value strategies, please see Kevin Matras’ book titled Finding #1 Stocks: Screening, Backtesting and Time-Proven Strategies (Wiley 2011). Click here for Kevin’s book.

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