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Screen of the Week of Zacks Investment Research by Kevin Matras:
Why the P/S Ratio Is My Favorite Valuation Metric
This week, I'm going to focus on the Price to Sales ratio for finding great stocks at great values.
The Price to Sales ratio is a great valuation metric. And given the recent run-up in stocks, value, to me, is becoming more and more important.
In fact, aside from the Zacks Rank, if I could only use one item to screen and pick stocks with, this item would be the one.
Definition
Let's first start with a definition.
The Price to Sales ratio is simply: Price divided by Sales
If the Price to Sales ratio is 1, that means you're paying $1 for every $1 of sales the company makes.
A price to sales ratio of 2 means you're paying $2 for every $1 of sales the company makes.
As you might have guessed, the lower the Price the Sales ratio, the better.
A price to Sales ratio of .5 means you're paying 50 cents for every $1 of sales the company makes.
And paying less than a dollar for a dollar's worth of something is a good bargain.
One of the reasons I like the Price to Sales ratio is because it looks at sales rather than earnings, like the P/E ratio does.
And sales are harder to manipulate on an income statement than earnings.
Secondly, I'd be hard pressed to find a screen where adding the Price to Sales ratio didn't improve it.
Price to Sales Study
For me, I prefer to look for stocks with a Price to Sales ratio under 1. Although, I'm willing to go up to 4, depending on the industry.
But in my testing, those with a Price to Sales ratio of 1 or less produced the best returns. Between 1 and 2 also outperformed pretty significantly. But once you got over 4, the odds were against you.
· P/S range greater than or equal to 0 and less than or equal to 1: Average Annual Return: 17.8%
· P/S range greater than 1 and less than or equal to 2: Average Annual Return: 11.1%
· P/S range greater than 2 and less than or equal to 3: Average Annual Return: 7.3%
· P/S range greater than 3 and less than or equal to 4: Average Annual Return: 3.8%
· P/S range greater than 4: Average Annual Return: -7.9%
But the best way to use it, I've found, is to find stocks with a Price to Sales ratio below the median for its Industry.
And that's what we'll be focusing on in this week's screen.
Screen Parameters
• Projected Growth Rate greater than or equal to Projected Growth Rate for the S&P (Above market growth rates.)
• Last Earnings Surprise greater than 0 (Positive EPS Surprise)
• Last Sales Surprise greater than 0 (Positive Sales Surprise)
• Zacks Rank less than or equal to 2 (Only stocks with a Zacks Rank of a Strong Buy or Buy get through.)
• Price to Sales less than or equal to Median Price to Sales for its Industry (Valuations that are lower than their Industry.)
• Price greater than or equal to $5
• Avg. 20 Day Volume greater than or equal to 100,000
Sign up now for your 2 week free trial to the Research Wizard and get the rest of the stocks on this list. Start using this screen and the Price to Sales ratio in your own trading. Or create your own strategies and test them first before you invest. Know what to buy and when to sell.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks.com featured highlights SP Plus, Thor Industries, Blucora, Micron Technology and CenterPoint Energy
For Immediate Release
Chicago, IL – August 30, 2017 - Stocks in this week’s article include SP Plus Corp.(NASDAQ: (SP - Free Report) – Free Report), Thor Industries(NYSE: (THO - Free Report) – Free Report), Blucora(NASDAQ: – Free Report), Micron Technology(NASDAQ: (MU - Free Report) – Free Report) and CenterPoint Energy(NYSE: (CNP - Free Report) – Free Report).
Screen of the Week of Zacks Investment Research by Kevin Matras:
Why the P/S Ratio Is My Favorite Valuation Metric
This week, I'm going to focus on the Price to Sales ratio for finding great stocks at great values.
The Price to Sales ratio is a great valuation metric. And given the recent run-up in stocks, value, to me, is becoming more and more important.
In fact, aside from the Zacks Rank, if I could only use one item to screen and pick stocks with, this item would be the one.
Definition
Let's first start with a definition.
The Price to Sales ratio is simply: Price divided by Sales
If the Price to Sales ratio is 1, that means you're paying $1 for every $1 of sales the company makes.
A price to sales ratio of 2 means you're paying $2 for every $1 of sales the company makes.
As you might have guessed, the lower the Price the Sales ratio, the better.
A price to Sales ratio of .5 means you're paying 50 cents for every $1 of sales the company makes.
And paying less than a dollar for a dollar's worth of something is a good bargain.
One of the reasons I like the Price to Sales ratio is because it looks at sales rather than earnings, like the P/E ratio does.
And sales are harder to manipulate on an income statement than earnings.
Secondly, I'd be hard pressed to find a screen where adding the Price to Sales ratio didn't improve it.
Price to Sales Study
For me, I prefer to look for stocks with a Price to Sales ratio under 1. Although, I'm willing to go up to 4, depending on the industry.
But in my testing, those with a Price to Sales ratio of 1 or less produced the best returns. Between 1 and 2 also outperformed pretty significantly. But once you got over 4, the odds were against you.
· P/S range greater than or equal to 0 and less than or equal to 1:
Average Annual Return: 17.8%
· P/S range greater than 1 and less than or equal to 2: Average Annual Return: 11.1%
· P/S range greater than 2 and less than or equal to 3: Average Annual Return: 7.3%
· P/S range greater than 3 and less than or equal to 4: Average Annual Return: 3.8%
· P/S range greater than 4: Average Annual Return: -7.9%
But the best way to use it, I've found, is to find stocks with a Price to Sales ratio below the median for its Industry.
And that's what we'll be focusing on in this week's screen.
Screen Parameters
• Projected Growth Rate greater than or equal to Projected Growth Rate for the S&P
(Above market growth rates.)
• Last Earnings Surprise greater than 0
(Positive EPS Surprise)
• Last Sales Surprise greater than 0
(Positive Sales Surprise)
• Zacks Rank less than or equal to 2
(Only stocks with a Zacks Rank of a Strong Buy or Buy get through.)
• Price to Sales less than or equal to Median Price to Sales for its Industry
(Valuations that are lower than their Industry.)
• Price greater than or equal to $5
• Avg. 20 Day Volume greater than or equal to 100,000
Stock Selections
Here are 5 stocks from this week's list:
(NASDAQ: SP– Free Report) SP Plus Corp.
(NYSE: THO– Free Report) Thor Industries
(NASDAQ: BCOR– Free Report) Blucora
(NASDAQ: MU– Free Report) Micron Technology
(NYSE: CNP– Free Report) CenterPoint Energy
Sign up now for your 2 week free trial to the Research Wizard and get the rest of the stocks on this list. Start using this screen and the Price to Sales ratio in your own trading. Or create your own strategies and test them first before you invest. Know what to buy and when to sell.
Learn how today with the Research Wizard.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
Sign up now for your free trial today and start picking better stocks immediately. And with the backtesting feature, you can test your ideas to see how you can improve your trading in both up markets and down markets. Don’t wait for the market to get better before you decide to do better. Start learning how to be a better trader today: https://at.zacks.com/?id=111
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
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Contact: Jim Giaquinto
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Phone: 312-265-9268
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Visit: https://www.zacks.com/performance
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.