Apple & P/S

Most investors look at one ratio at a time.

They check the P/E, maybe glance at the P/B…

See which one best supports their bias, and call it a day.

One is never enough to tell the bigger story.

And figuring out that story is the whole point of looking, right?

Here’s a combination I love: low price-to-sales (P/S), high debt-to-equity, and falling interest rates.

At first glance, this might sound crazy.

High debt is usually a red flag, right?

Not always!

When rates are falling, high debt can actually be an advantage.

Companies can refinance their debt at lower rates, which instantly improves their cash flow and makes their balance sheets stronger.

A low P/S ratio means you’re paying less for each dollar of sales, which is a good sign that a company might be undervalued - especially if previously their P/S has been higher…

It’s all part of that bell curve relationship we went through last week…

Data has to revert to the mean at some point!

If the company is generating solid sales and has manageable debt, they’re in a great position to benefit from falling rates too.

This setup works especially well in unsexy sectors like utilities, real estate & industrials.

Utilities and REITs have steady cash flows that can service their debt, and industrials can use lower rates to invest in growth.

When rates start to drop, these companies get a double boost: their debt burden decreases, and their valuation improves.

This can also work well for unloved tech co’s that weren’t growing fast enough to keep investor attention.

Try it for yourself:

Look for companies with a P/S ratio below 2.0. This suggests they might be undervalued.

Check their debt-to-equity ratio, ideally it’ll be somewhere between 0.5 and 1.5.

This means they’re leveraged enough to benefit from lower rates but not drowning in debt.

Price To Sales Ratio

The P/S ratio is simple and massively under-appreciated.

It measures the current share price against the sales generated by the business.

P/S = stock price divided by revenue per share over the past year.

Let’s use an example.

Apple’s price-to-sales (P/S) ratio is approximately 7.5 as I write this.

Spreadsheet lovers will look at this and think Apple is over-valued.

Nerds will say:

Over the past 13 years, Apple’s P/S ratio has ranged from a low of about 2.24 to a high of 10.08, with a median of 5.57.

The current P/S ratio is above the historical median but below the recent highs seen in late 2024 and early 2025 (when it approached or exceeded 9-10).

The current P/S is near the lower end of its recent range over the past couple of years, but still above its long-term median.

Which is next to useless.

Here’s where the storytelling comes in.

With the exception of the 2022 selloff, Apple’s P/S ratio is approaching the lower end of the range where investors have typically decided to pull the trigger.

Apple’s share price is down 19% ytd.

That covers the price aspect.

The sales side of the ratio is way more informative.

Media coverage focuses on the slowdown in iPhone sales growth and potential tariff impact.

There’s less fanfare about their fast growing subscription & services revenue.

In the last quarter, Apple’s services revenue hit new highs of $26.6 billion, higher than the $23.9 billion they took in for the same quarter in 2024, and smashing analyst expectations.

Ask yourself… What are the potential catalysts here?

The US is currently negotiating a trade deal with India, where Apple is now shifting their manufacturing in anticipation of lower tariffs than those imposed on China.

A positive resolution here should support Apple’s share price.

Let’s think bigger though.

How could Apple grow their services revenue streams even further?

And could a Perplexity acquisition be part of that?

It would be no surprise to see Apple really crack the subscription market using Apple One.

Everything bundled into a monthly subscription…

Apple TV, Apple Music, iCloud, Fitness+

Add Perplexity Premium to this stack and you’ve got an incredibly attractive offering.

They’ve already got an enormous customer base with approximately 1.4 billion iPhone users globally.

On top of that, finally cracking the AI tools integration could drive more device upgrades.

So, is there potential for sales growth to continue? Absolutely!

Over the past 12 months they’ve raked in over $400 billion in annual sales.

And they LOVE to buy back their own shares…

Look at how that’s affected the share count over time…

Remember how the price to sales ratio is calculated

P/S Ratio = stock price divided by revenue per share over the past year.

So, here you’ve got a company that’s still growing revenues while reducing their share count.

With potential to grow sales even more once they figure out the AI side (or buy/partner with Perplexity)

The S (sales) side of the P/S ratio looks good.

The question now is if the P (price) will respond…

Tomorrow we’ll go through price to earnings and put all this together to see how we can come to a strong thesis based on these fundamentals…

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