While I agree that the P/S ratio will tell you little when comparing companies across industries, I find this metric to be very useful when comparing companies within the same industry. I also use as a rough proxy for value when attempting to value companies that have no profits/cash flow.
Brian:
Yes I agree with you, the P/S comparison metric is most helpful within the same industry.
But I also use it as a same company yearly comparison, using that company’s historical P/S over previous years as detailed by Morningstar or whatever service one prefers.
Using ISRG as an example and clicking on the valuation tab, one can see the average P/S of all years in retrospect:
http://www.morningstar.com/stocks/xnas/isrg/quote.html
Its current P/S at 16…is its highest by far going back to 2008!
And as in Denny’s example in 2011, it was 11…again, at the highest range in that time frame…return over subsequent 2 years…-2%.