The P/S ratio compares a company's market capitalization (or stock price) to its total sales or revenue, providing a measure of the company's valuation relative to its sales. A lower P/S ratio may indicate that a company is undervalued, while a higher P/S ratio could suggest overvaluation. However, the P/S ratio should be considered in conjunction with other valuation metrics, industry comparisons, and historical trends for a comprehensive understanding of a company's financial health.