Investment in stocks made after analysis of valuation metrics is usually considered one of the best practices. When considering valuation metrics, price-to-earnings ratio has always been the obvious choice. This is because calculations based on earnings are easy and come in handy. However, 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, its price-to-sales could indicate the hidden strength of the 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 a 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 than 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, 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 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. 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. Value Score less than or equal to B: Here are seven of the 16 stocks that qualified the screening: Office Depot, Inc. ( ODP Quick Quote ODP - Free Report) is one of the leading providers of business services and supplies, products and technology solutions to small, medium and enterprise businesses through its fully integrated business-to-business distribution platform of 1,307 retail stores, online presence, and dedicated sales professionals and technicians. The company reports through three segments: Business Solutions Division, also referred to as BSD, Retail Division, and CompuCom Division. The stock currently has a Value Score of A and a Zacks Rank #2. It has a 3–5 year EPS growth rate of 6.8%. Korea Electric Power Corporation ( KEP Quick Quote KEP - Free Report) is an integrated electric utility company that generates, transmits and distributes electricity in Korea and internationally. Based in Naju, South Korea, the company generates power from nuclear, coal, oil, liquefied natural gas, internal combustion, combined-cycle, integrated gasification combined cycle, hydro, wind, solar, fuel cell, biogas, and other sources. 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%. Popular Inc. ( BPOP Quick Quote BPOP - Free Report) is a diversified, publicly-owned bank holding company. It engages in providing various retail, mortgage, and commercial banking products and services, primarily to institutional and retail customers. The stock currently has a Zacks Rank #2 and a Value Score of B. Zaandam, the Netherlands-based Koninklijke Ahold Delhaize N.V. ( ADRNY Quick Quote ADRNY - Free Report) was founded in 1887 and operates retail food stores primarily in the United States and Europe. The company offers supermarket, superstore, online shopping, online grocery shopping, small supermarket, convenience store, drugstore, wine and liquor store, online shopping for general merchandise, compact hyper and supermarket, and hypermarkets store formats. The company’s 3-5 year EPS growth rate is expected to be 5.1%. The stock has a Value Score of A and Zacks Rank #2. You can see . the complete list of today’s Zacks #1 Rank stocks here Universal Forest Products, Inc. ( UFPI Quick Quote UFPI - Free Report) is a holding company with its subsidiaries throughout North America, Europe, Asia, and Australia. The company supplies wood, wood composite and other products in retail, industrial, and construction market. The company currently has approximately 204 facilities and parcels of land located throughout the United States, Canada, Mexico, Europe, Asia, and Australia. The stock currently has a Zacks Rank #2 and Value Score of B. Lakeland Industries, Inc. ( LAKE Quick Quote LAKE - Free Report) is a manufacturer and seller of industrial protective clothing and accessories for the industrial and public protective clothing market worldwide. It offers limited use/disposable protective clothing; high-end chemical protective suits to provide protection from highly concentrated, toxic and/or lethal chemicals, and biological toxins; and firefighting and heat protective apparel to protect against fire. It sells its products to a network of 1,600 safety and industrial supply distributors through in-house sales teams, customer service group, and independent sales representatives. The stock currently has a Zacks Rank #1 and Value Score of B. Houston, TX-based Plains All American Pipeline, L.P. ( PAA Quick Quote PAA - Free Report) , a master limited partnership (“MLP”), is involved in the transportation, storage, terminalling and marketing of crude oil, natural gas, natural gas liquids and refined products in the United States and Canada. The partnership has operations in the Permian Basin, South Texas/Eagle Ford area, Rocky Mountain and Gulf Coast in the United States, and Manito, South Saskatchewan, Rainbow in Canada. The stock currently has a Zacks Rank #2 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