How to Value Loss-Makers? Use P/S and EV/Sales

4-section structure: Concept / How We Compute / How to Read / Caveats.

1. Concept

How do you value a loss-making company?

• PE fails (negative EPS)
• DDM/GGM fail (no dividend)
• DCF works but is too subjective
• PB distorts for asset-light businesses (SaaS, biotech)

Solution: P/S (Price / Sales per share) or EV/Sales (Enterprise Value / Sales).

Why revenue?

• More stable than earnings (earnings can be distorted by one-offs or accounting)
• Harder to manipulate (revenue recognition rules are strict)
• Meaningful for growth stocks (high-growth companies have expanding revenue before profitability)

P/S vs EV/Sales

Example:

• A: market cap 100, zero debt, revenue 50 → P/S=2, EV/S=2
• B: market cap 100, net debt 50, revenue 50 → P/S=2, EV/S=3 (B is more expensive)

Same P/S but B carries 50 of debt — EV/Sales reveals this.

2. How We Compute

2.1 P/S Range Model

High price = targetPSHigh × TTM revenue per share
Low price = targetPSLow × TTM revenue per share

TTM revenue per share = TTM revenue (NTD) / shares_outstanding
TTM revenue = sum of past 4 single-quarter revenues

Backend computes from FR_IS_一般_tw_h (cumulative → deaccumulated → last 4 quarters).

2.2 EV/Sales Model

1. EV = targetMultiple × TTM revenue
2. Equity value = EV − net debt
3. Fair price = equity value / shares

Net debt = total liabilities − ending cash (latest quarter BS + CF).

2.3 Consensus Weights Updated

With P/S + EV/Sales added, 8-model consensus rebalanced:

Cash-flow models 40%: DCF 25% + DDM 8% + GGM 7%
Relative valuation 60%: PE 18% + PB 12% + EV/EBITDA 12% + EV/Sales 10% + P/S 8%

Invalid models (missing revenue etc.) auto-excluded; weights renormalized.

2.4 UI

Two new tabs in "Valuation": P/S and EV/S. Both pre-populated with API-provided TTM revenue data.

3. How to Read

P/S Scale

EV/Sales Scale

Combined Reading

High P/S + High EV/S: growth stock. Combine with:

• Revenue YoY (verify real growth)
• Gross margin (verify future profitability)
• NDR / retention (verify stickiness)

Low P/S + High EV/S: heavy debt. EV/Sales reveals this trap.

Low P/S relative to peers: underrated leader or fundamentally broken? Check with P1B.1 ratio percentiles.

4. Caveats

⚠️ Not for Low-Margin Industries

Steel, petchem, shipping, chemicals — revenue 100 may only yield 1 profit. Same P/S companies can have 5x profit-generating capacity difference.

Use PE (cycle peak) or PB (cycle bottom) instead.

⚠️ Not for Financials

Banks, insurance, brokerage have totally different "revenue" definitions. Use PB instead.

⚠️ Non-Operating Income Distortion

Holding companies with large investment gains / disposal gains → revenue small, profits large, P/S inflated.

⚠️ Sustainability of Revenue Growth

High P/S assumes growth is sustainable. If revenue growth drops from 50% to 10%, stock price adjusts hard — the "growth trap".

Combine with P1B.3 (planned) peer revenue comparison; check 3-year revenue CAGR, not just latest quarter.

⚠️ Simplified EV

Net debt = total_liabilities − ending_cash. Strict EV = market cap + debt − cash + minority interest − financial investments. We exclude minority interest and financial investments for simplicity. <5% impact for most, distorts holding companies.

⚠️ TW EBITDA Proxy

TW IS lacks standalone depreciation, so EBITDA = operating_income. EV/EBITDA may understate true EBITDA. EV/Sales is unaffected since denominator is revenue.

Further Reading

• What Is DCF?
• 6 Valuation Models Compared
• Relative Valuation Percentile (P0.4)
• EV/EBITDA: Cross-Industry Comparison

Try It

• Open Stock Analysis → Valuation — two new tabs P/S and EV/S
• TSMC-like stable companies: P/S and EV/Sales won't be extreme
• A high-growth SaaS or biotech: watch P/S balloon
• Consensus now combines 8 models with rebalanced weights
• Click 📐 for formulas, TTM revenue source, industry applicability