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7 Low Price-to-Sales Stocks to Add Value to Your Portfolio
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Though Price-to-Earnings is the first thing to cross one’s mind while using valuation metrics, Price-to-Sales has emerged as a convenient tool to determine the value of stocks that are incurring losses or are in an early cycle of development, generating meager or no profits.
While a loss-making company with a negative price-to-earnings ratio falls out of investor favor, price-to-sales could indicate the hidden strength of its business. This underrated ratio is also used to identify a recovery situation or ensure that a company's growth is not overvalued.
A stock’s price-to-sales ratio reflects how much investors are paying for each dollar of revenues generated by the company.
If the price-to-sales ratio is 1, it means that investors are paying $1 for every $1 of revenues generated by the company. So, it goes without saying that 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 versus a stock with a high price-to-sales ratio.
Price-to-sales 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 high debt and low price-to-sales is not an ideal choice. The high debt level will have to be paid off at some point, leading to further share issuance and 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 also analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
Screening Parameters
Price to Sales less than 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 Median Price to Earnings for its Industry: The lower, the better.
Price to Book (common Equity) less than 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 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 all be trading at a minimum of $5 or higher.
Zacks Rank less than or equal to #2: Zacks Rank #1 (Strong Buy) or #2 (Buy) stocks are known to outperform irrespective of the market environment.
Value Scoreless 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 seven of the 19 stocks that qualified the screening:
Based in Columbus, OH, Big Lots (BIG - Free Report) is a broad-line closeout retailer in the United States. The company offers products under various merchandising categories, which include Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, and Electronics & Accessories. The stock currently has a Zacks Rank #2 and a Value Score of A. Also, the 3-5 year EPS growth rate for the stock is 12%.
Hub Group (HUBG - Free Report) is a transportation management company that provides multi-modal solutions throughout North America, including intermodal, truck brokerage, dedicated and logistics services. The company is one of the largest over-the-road brokers in North America. This Zacks Rank #1 company has a 3–5 year EPS growth rate of 15%. The stock has a Value Score of B.
Domtar manufactures and distributes a wide array of fiber-based products including communication papers, specialty and packaging papers and adult incontinence products. Domtar also owns and operates an extensive network of strategically located paper and printing supplies distribution facilities. The stock currently has a Zacks Rank #2 and a Value Score of A. It has a 3–5 year EPS growth rate of 5%.
Hitachi (HTHIY - Free Report) produces sells, and services information and telecommunication systems, power systems, social infrastructure and industrial systems, electronic systems and equipment, construction machinery, functional materials and components, automotive systems, and smart life and eco-friendly systems worldwide. It has a 3–5 year EPS growth rate of 13%. The stock 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.
Phoenix, AZ-based Avnet (AVT - Free Report) is one of the world’s largest distributors of electronic components and computer products. It has a 3–5 year EPS growth rate of 7.2%. The stock currently has a Value Score of B and a Zacks Rank #2.
GMS Inc. (GMS - Free Report) is a distributor of wallboards, suspended ceilings systems, and related construction products in the United States and Canada. The company's products consist of wallboard, suspended ceilings systems or ceilings and complementary interior construction products in commercial and residential buildings. The company has a Value Score of A and a Zacks Rank #2. It has a 3–5 year EPS growth rate of 7%.
Triple-S Management Corporation is an independent licensee of the Blue Cross Blue Shield Association. It is the largest managed care company in Puerto Rico, serving approximately one million members across all regions. Triple-S offers a broad portfolio of managed care and related products in the commercial, Medicare and Medicaid markets. This Zacks Rank #2 company has a 3–5 year EPS growth rate of 10% and a Value Score of A.
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.
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 »
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7 Low Price-to-Sales Stocks to Add Value to Your Portfolio
Though Price-to-Earnings is the first thing to cross one’s mind while using valuation metrics, Price-to-Sales has emerged as a convenient tool to determine the value of stocks that are incurring losses or are in an early cycle of development, generating meager or no profits.
While a loss-making company with a negative price-to-earnings ratio falls out of investor favor, price-to-sales could indicate the hidden strength of its business. This underrated ratio is also used to identify a recovery situation or ensure that a company's growth is not overvalued.
A stock’s price-to-sales ratio reflects how much investors are paying for each dollar of revenues generated by the company.
If the price-to-sales ratio is 1, it means that investors are paying $1 for every $1 of revenues generated by the company. So, it goes without saying that 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 versus a stock with a high price-to-sales ratio.
Price-to-sales 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 high debt and low price-to-sales is not an ideal choice. The high debt level will have to be paid off at some point, leading to further share issuance and 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 also analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
Screening Parameters
Price to Sales less than 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 Median Price to Earnings for its Industry: The lower, the better.
Price to Book (common Equity) less than 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 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 all be trading at a minimum of $5 or higher.
Zacks Rank less than or equal to #2: Zacks Rank #1 (Strong Buy) or #2 (Buy) 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 seven of the 19 stocks that qualified the screening:
Based in Columbus, OH, Big Lots (BIG - Free Report) is a broad-line closeout retailer in the United States. The company offers products under various merchandising categories, which include Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, and Electronics & Accessories. The stock currently has a Zacks Rank #2 and a Value Score of A. Also, the 3-5 year EPS growth rate for the stock is 12%.
Hub Group (HUBG - Free Report) is a transportation management company that provides multi-modal solutions throughout North America, including intermodal, truck brokerage, dedicated and logistics services. The company is one of the largest over-the-road brokers in North America. This Zacks Rank #1 company has a 3–5 year EPS growth rate of 15%. The stock has a Value Score of B.
Domtar manufactures and distributes a wide array of fiber-based products including communication papers, specialty and packaging papers and adult incontinence products. Domtar also owns and operates an extensive network of strategically located paper and printing supplies distribution facilities. The stock currently has a Zacks Rank #2 and a Value Score of A. It has a 3–5 year EPS growth rate of 5%.
Hitachi (HTHIY - Free Report) produces sells, and services information and telecommunication systems, power systems, social infrastructure and industrial systems, electronic systems and equipment, construction machinery, functional materials and components, automotive systems, and smart life and eco-friendly systems worldwide. It has a 3–5 year EPS growth rate of 13%. The stock 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.
Phoenix, AZ-based Avnet (AVT - Free Report) is one of the world’s largest distributors of electronic components and computer products. It has a 3–5 year EPS growth rate of 7.2%. The stock currently has a Value Score of B and a Zacks Rank #2.
GMS Inc. (GMS - Free Report) is a distributor of wallboards, suspended ceilings systems, and related construction products in the United States and Canada. The company's products consist of wallboard, suspended ceilings systems or ceilings and complementary interior construction products in commercial and residential buildings. The company has a Value Score of A and a Zacks Rank #2. It has a 3–5 year EPS growth rate of 7%.
Triple-S Management Corporation is an independent licensee of the Blue Cross Blue Shield Association. It is the largest managed care company in Puerto Rico, serving approximately one million members across all regions. Triple-S offers a broad portfolio of managed care and related products in the commercial, Medicare and Medicaid markets. This Zacks Rank #2 company has a 3–5 year EPS growth rate of 10% and a Value Score of A.
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.
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 »