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5 Low Price-to-Sales Stocks Poised to Race up the Charts
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Investment in stocks after analyzing valuation metrics is considered one of the best practices. When considering valuation metrics, the price-to-earnings ratio has always been the obvious choice. This is because calculations based on earnings are easy and come in handy. However, the price-to-sales ratio is convenient for determining the value of stocks that are incurring losses or in an early development cycle, generating meager or no profit.
What’s the Price-to-Sales Ratio?
While a loss-making company with a negative price-to-earnings ratio falls out of investor favor, its price-to-sales can indicate the hidden strength of the business. This underrated ratio is also used to identify a recovery situation or ensure a company's growth is not overvalued.
A stock’s price-to-sales ratio reflects how much investors pay for each dollar of revenue generated by a company.
If the price-to-sales ratio is 1, investors are paying $1 for every $1 of revenues generated by the company. A stock with a price-to-sales below 1 is a good bargain as investors need to pay less than a dollar for a dollar’s worth.
Thus, a stock with a lower price-to-sales ratio is a more suitable investment than a stock with a high price-to-sales ratio.
The price-to-sales ratio is often preferred over price-to-earnings, as companies can manipulate their earnings using various accounting measures. However, sales are harder to manipulate and are relatively reliable.
However, one should keep in mind that a company with a high debt and a low price-to-sales ratio is not an ideal choice. The high debt level will have to be paid off at some point, leading to further share issuance, a rise in market cap, and, ultimately, a higher price-to-sales ratio.
In any case, the price-to-sales ratio used in isolation cannot do the trick. One should analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
KB Home (KBH - Free Report) , Affiliated Managers Group (AMG - Free Report) , Cigna Group (CI - Free Report) , Barrett Business Services (BBSI - Free Report) and JAKKS Pacific (JAKK - Free Report) are some companies with a low price-to-sales ratio and the potential to offer higher returns.
Screening Parameters
Price to Sales less than the Median Price to Sales for its Industry: The lower the price-to-sales ratio, the better.
Price to Earnings using F(1) estimate less than the Median Price to Earnings for its Industry: The lower, the better.
Price to Book (common Equity) less than the Median Price to Book for its Industry: This is another parameter to ensure the value feature of a stock.
Debt to Equity (Most Recent) less than the Median Debt to Equity for its Industry: A company with less debt should have a stable price-to-sales ratio.
Current Price greater than or equal to $5: The stocks must be trading at a minimum of $5 or higher.
Zacks Rank less than or equal to #2 (Buy): Zacks Rank #1 (Strong Buy) or 2 stocks are known to outperform, irrespective of the market environment.
Value Score less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.
Here are five of the 17 stocks that qualified the screening:
Based in Los Angeles, CA, KB Home is a well-known homebuilder in the United States and one of the largest in the state. The company has been pursuing a return-focused growth plan that is designed to drive revenues and homebuilding operating income margin, return on invested capital, return on equity, and the leverage ratio. It is further benefiting from its intent focus on implementing the built-to-order model, reducing cycle times and offering various forms of mortgage concessions.
The company invests aggressively in land acquisition and development, mainly in high-end locations, which is critical for community count and top-line growth. This has eventually helped the company in reducing debt. KBH remains optimistic that this blend of rising active inventory while reducing its annual interest incurred will boost future gross margin and returns. KBH currently has a Value Score of A and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Affiliated Managers is a global asset manager with equity investments in a large group of investment management firms or affiliates. The company has been well-poised for growth on the back of successful partnerships, its global distribution capability and a robust balance sheet. Its capital distributions seem sustainable. Diverse product offerings, a robust assets under management balance and global distribution capability are expected to continue driving AMG’s top line.
AMG, with its strong balance sheet and liquidity position, has considerable capability to invest in other companies and generate meaningful growth through investments. A robust liquidity position is likely to support investments in alternatives, thereby generating solid earnings. Affiliated Managers currently carries a Zacks Rank #2 and has a Value Score of A.
Cigna Group is a global health company. It has been growing its membership for many quarters now. We expect it to keep growing. The company’s diversified product portfolio, wide agent network and superior service are major positives. In its government business, including Medicare Advantage, CI continues to drive strong market and product expansion, as well as in-market growth.
The company has been focused on strategic bolt-on buyouts and tie-ups to boost inorganic growth. Its revenues have been increasing consistently since 2010, driven by several acquisitions, its superior operating performance, and the provision of quality products and services. Cigna Group’s consistent focus on providing affordable, predictable and simple solutions to its clients positions it well for the long haul. CI currently has a Value Score of A and a Zacks Rank #2.
Barrett provides business management solutions for small and mid-sized companies in the United States. The company has developed a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry.
The company has been gaining from an expanding client base and the ongoing rollout of BBSI Benefits. Additionally, Barrett continues to witness positive results in its pricing and cost-management strategies, leading to strong, sustainable earnings growth. BBSI currently has a Value Score of A and a Zacks Rank #2.
Based in Malibu, CA, JAKKS Pacific is a multi-brand company that has been designing and marketing a broad range of toys and consumer products. The company is benefiting from the FOB business model, strategic acquisitions, a solid international footprint, a focus on innovation and collaborations with popular brands and movie franchisees. The emphasis on the expansion of retail reach bodes well.
JAKK has emerged as a diversified consumer products company, buoyed by a string of acquisitions over the past several years. The company realized the importance of online retailing and shifted its focus to boosting online sales. JAKK currently has a Value Score of A and a Zacks Rank #2.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your trial to the Research Wizard today. And the next time you read an economic report, open up the Research Wizard, plug your finds in and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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5 Low Price-to-Sales Stocks Poised to Race up the Charts
Investment in stocks after analyzing valuation metrics is considered one of the best practices. When considering valuation metrics, the price-to-earnings ratio has always been the obvious choice. This is because calculations based on earnings are easy and come in handy. However, the price-to-sales ratio is convenient for determining the value of stocks that are incurring losses or in an early development cycle, generating meager or no profit.
What’s the Price-to-Sales Ratio?
While a loss-making company with a negative price-to-earnings ratio falls out of investor favor, its price-to-sales can indicate the hidden strength of the business. This underrated ratio is also used to identify a recovery situation or ensure a company's growth is not overvalued.
A stock’s price-to-sales ratio reflects how much investors pay for each dollar of revenue generated by a company.
If the price-to-sales ratio is 1, investors are paying $1 for every $1 of revenues generated by the company. A stock with a price-to-sales below 1 is a good bargain as investors need to pay less than a dollar for a dollar’s worth.
Thus, a stock with a lower price-to-sales ratio is a more suitable investment than a stock with a high price-to-sales ratio.
The price-to-sales ratio is often preferred over price-to-earnings, as companies can manipulate their earnings using various accounting measures. However, sales are harder to manipulate and are relatively reliable.
However, one should keep in mind that a company with a high debt and a low price-to-sales ratio is not an ideal choice. The high debt level will have to be paid off at some point, leading to further share issuance, a rise in market cap, and, ultimately, a higher price-to-sales ratio.
In any case, the price-to-sales ratio used in isolation cannot do the trick. One should analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
KB Home (KBH - Free Report) , Affiliated Managers Group (AMG - Free Report) , Cigna Group (CI - Free Report) , Barrett Business Services (BBSI - Free Report) and JAKKS Pacific (JAKK - Free Report) are some companies with a low price-to-sales ratio and the potential to offer higher returns.
Screening Parameters
Price to Sales less than the Median Price to Sales for its Industry: The lower the price-to-sales ratio, the better.
Price to Earnings using F(1) estimate less than the Median Price to Earnings for its Industry: The lower, the better.
Price to Book (common Equity) less than the Median Price to Book for its Industry: This is another parameter to ensure the value feature of a stock.
Debt to Equity (Most Recent) less than the Median Debt to Equity for its Industry: A company with less debt should have a stable price-to-sales ratio.
Current Price greater than or equal to $5: The stocks must be trading at a minimum of $5 or higher.
Zacks Rank less than or equal to #2 (Buy): Zacks Rank #1 (Strong Buy) or 2 stocks are known to outperform, irrespective of the market environment.
Value Score less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.
Here are five of the 17 stocks that qualified the screening:
Based in Los Angeles, CA, KB Home is a well-known homebuilder in the United States and one of the largest in the state. The company has been pursuing a return-focused growth plan that is designed to drive revenues and homebuilding operating income margin, return on invested capital, return on equity, and the leverage ratio. It is further benefiting from its intent focus on implementing the built-to-order model, reducing cycle times and offering various forms of mortgage concessions.
The company invests aggressively in land acquisition and development, mainly in high-end locations, which is critical for community count and top-line growth. This has eventually helped the company in reducing debt. KBH remains optimistic that this blend of rising active inventory while reducing its annual interest incurred will boost future gross margin and returns. KBH currently has a Value Score of A and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Affiliated Managers is a global asset manager with equity investments in a large group of investment management firms or affiliates. The company has been well-poised for growth on the back of successful partnerships, its global distribution capability and a robust balance sheet. Its capital distributions seem sustainable. Diverse product offerings, a robust assets under management balance and global distribution capability are expected to continue driving AMG’s top line.
AMG, with its strong balance sheet and liquidity position, has considerable capability to invest in other companies and generate meaningful growth through investments. A robust liquidity position is likely to support investments in alternatives, thereby generating solid earnings. Affiliated Managers currently carries a Zacks Rank #2 and has a Value Score of A.
Cigna Group is a global health company. It has been growing its membership for many quarters now. We expect it to keep growing. The company’s diversified product portfolio, wide agent network and superior service are major positives. In its government business, including Medicare Advantage, CI continues to drive strong market and product expansion, as well as in-market growth.
The company has been focused on strategic bolt-on buyouts and tie-ups to boost inorganic growth. Its revenues have been increasing consistently since 2010, driven by several acquisitions, its superior operating performance, and the provision of quality products and services. Cigna Group’s consistent focus on providing affordable, predictable and simple solutions to its clients positions it well for the long haul. CI currently has a Value Score of A and a Zacks Rank #2.
Barrett provides business management solutions for small and mid-sized companies in the United States. The company has developed a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry.
The company has been gaining from an expanding client base and the ongoing rollout of BBSI Benefits. Additionally, Barrett continues to witness positive results in its pricing and cost-management strategies, leading to strong, sustainable earnings growth. BBSI currently has a Value Score of A and a Zacks Rank #2.
Based in Malibu, CA, JAKKS Pacific is a multi-brand company that has been designing and marketing a broad range of toys and consumer products. The company is benefiting from the FOB business model, strategic acquisitions, a solid international footprint, a focus on innovation and collaborations with popular brands and movie franchisees. The emphasis on the expansion of retail reach bodes well.
JAKK has emerged as a diversified consumer products company, buoyed by a string of acquisitions over the past several years. The company realized the importance of online retailing and shifted its focus to boosting online sales. JAKK currently has a Value Score of A and a Zacks Rank #2.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your trial to the Research Wizard today. And the next time you read an economic report, open up the Research Wizard, plug your finds in and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.