There are dozens of ways to value a company’s shares. One of the simplest is to look at its share price relative to the sales the company rang up over the past 12 months.
This is called the price-to-sales (P/S) ratio. Here’s a chart of the P/S ratio for the S&P 500 back to the start of the 1990s…
As you can see, in January, the P/S ratio for the S&P 500 hit its highest level ever.
Think about that for a moment…
By this metric, the S&P 500 is now pricier than it was at the top of the dot-com mania at the end of the 1990s.
And that didn’t end well. After the P/S ratio peaked at 2.36 in March 2000, the index fell 49% before bottoming three years later.
– Chris Lowe
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