Nearing 10x Sales For Large-Cap Tech

Daily Hub Update June 20, 2024

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In today’s Chart of the Day, we took a look at valuations across the Tech sector and how things stand relative to historical extremes.

Below is a quick look at trailing 12-month price to sales ratios (P/S) over the last five years for the large-cap S&P 500 and small-cap Russell 2000 along with each index’s respective Technology sector.

As shown, the Russell 2000’s price to sales ratio is just 1.25x, which is slightly below its average P/S ratio over the last five years. The Russell 2000 Technology sector’s price to sales ratio is higher at 2.8x, but that’s still below the 2.9x P/S ratio for the S&P 500 as a whole.

Incredibly, the S&P 500 Tech sector’s price to sales ratio has pushed all the way up to 9.8x, which is well above its high at the peak in late 2021. A 9.8x multiple is attractive if you’re looking at price to earnings (P/E), but for Tech stocks to be trading at 9.8x annual sales, that’s just a remarkably high number.

price to sales ratios for large and small cap tech

Below is a look at the stocks in the large-cap Russell 1000 that have seen the biggest increase in their price to sales (P/S) ratios since the current bull market began on 10/12/22.

As shown, Nvidia (NVDA) has seen its share price rise more than 1,000% during this bull market, but its P/S ratio has made 32 turns higher from 9.7x up to 41.9x!

That’s by far the biggest jump of any stock in the index. Of the 30 stocks shown, the average P/S ratio has risen 9.6 points from 8.6x up to 18.2x, and most stocks on the list are Tech stocks.