The price to sales ratio is a valuation metric that is calculated by dividing market cap by annual sales.  In a normal market environment, a company with a lower price to sales ratio looks more attractive than a company with a higher price to sales ratio.  Based on the price action we’ve seen recently, however, this is not a normal market environment!  Lately, the higher the price to sales ratio, the higher the share-price return.

Looking at the S&P 500 as a whole, the index’s current price to sales ratio is just under 3 at 2.89.  That’s about 75% above the S&P’s average price to sales ratio of 1.65 seen since 1995.  The S&P 500 Technology sector’s price to sales ratio has climbed to 7.03.  That’s more than double the average price to sales ratio of 3.12 of the Tech sector since 1995.

As shown below, the S&P 500’s price to sales ratio is currently solidly above the peak reading it saw in March 2000 at the top of the Dot Com boom.  The Technology sector’s price to sales ratio has not quite made it to its Dot Com peak of 7.87, but it’s getting close.  Click here to view Bespoke’s premium membership options for our best research available.

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