Reynolds American Inc. (NYSE:RAI)

The Price-to-Sales (P/S) ratio experienced an overall upward trajectory between February 2006 and February 2017, characterized by an initial period of volatility followed by an accelerated valuation expansion. While sales per share remained relatively stable throughout the eleven-year period, the P/S ratio grew from 1.50 to 5.12, indicating that the market's valuation of the company's revenue increased significantly over time.

Initial Volatility and Contraction (2006–2009)

The P/S ratio initially trended upward from 1.50 in 2006 to 1.73 in 2008. However, a sharp contraction occurred by February 2009, where the ratio fell to a period low of 0.96. This decline was primarily driven by a substantial decrease in the share price, which dropped to 8.83, while sales per share remained resilient at 9.21.

Steady Recovery and Growth (2010–2014)

Following the 2009 low, a consistent recovery phase is observed. The P/S ratio climbed steadily from 1.24 in 2010 to 2.16 in 2014. During this interval, share prices rose from 13.17 to 24.04, while sales per share saw modest gains, moving from 10.59 to 11.14. This suggests a gradual increase in the multiple the market was willing to pay for each dollar of sales.

Accelerated Valuation Expansion (2015–2017)

The final period is marked by a rapid escalation in the P/S ratio, which surged from 3.09 in 2015 to 5.12 in 2017. This spike in the ratio was driven by an aggressive increase in share price, which rose from 35.15 to 60.54. Notably, this valuation expansion occurred even as sales per share experienced a dip to 10.25 in 2016 before recovering to 11.81 in 2017, indicating that the P/S growth was decoupled from organic sales growth and driven instead by market pricing dynamics.

In summary, the divergence between the relatively flat growth of sales per share and the exponential growth of the share price led to a significant expansion of the P/S ratio. By 2017, the market valuation per dollar of sales was more than triple the level observed during the 2006–2008 period.