What it is
P/S compares the market value of equity to the company's annual revenue.
When it's the right tool
P/S is the go-to multiple when a company is not yet profitable — early-stage SaaS, biotech, anything growing fast and reinvesting heavily. Because there's no positive EPS, P/E is undefined; P/S keeps working.
P/S is less informative when comparing across industries with very different margin structures. A retailer at 1× sales and a software company at 10× sales may be roughly equivalent on a P/E basis once their margins are accounted for.