Investment in stocks made after an 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 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 high debt and 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, 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 30 stocks that qualified the screening: Bassett Furniture Industries ( BSET Quick Quote BSET - Free Report) is a home furnishing retailer with operations in the United States and internationally. It engages in designing, manufacturing, sourcing, distribution, and sale of furniture products to a network of company-owned and licensee-owned Bassett Home Furnishings retail stores, as well as independent furniture retailers; and wood and upholstery operations. The stock currently has a Value Score of B and a Zacks Rank #1. It has a 3–5 year EPS growth rate of 16%. Vishay Intertechnology ( VSH Quick Quote VSH - Free Report) is a global manufacturer and supplier of semiconductors and passive components. Semiconductor products include metal oxide semiconductor field-effect transistors (MOSFETs), diodes and optoelectronic components. These are typically used to perform functions such as switching, amplifying, rectifying, routing or transmitting electrical signals, power conversion, and power management. The stock currently has a Zacks Rank #2 and a Value Score of B. It has a 3–5 year EPS growth rate of 2.6%. Woodlands, TX-based Huntsman Corporation ( HUN Quick Quote HUN - Free Report) is among the world's largest manufacturers of differentiated and commodity chemical products. The company markets its products to a diverse group of industrial and consumer customers. Its products include MDI, polyols, propylene oxide, amines, surfactants, maleic anhydride, epoxy-based polymer formulations, textile chemicals and dyes. Huntsman’s products are used in a number of applications including aerospace, automotive, construction products, adhesives, personal care and hygiene, durable and nondurable consumer products, digital inks, electronics, medical, packaging, coatings and construction, power generation, refining and textile chemicals. The stock currently has a Zacks Rank #1 and a Value Score of B. It has a 3–5 year EPS growth rate of 8.9%. China Petroleum & Chemical Corporation ( SNP Quick Quote SNP - Free Report) or Sinopec, with its head office in Beijing, China, is one of the largest petroleum and petrochemical companies in Asia. It is the second largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China. The company is also the largest producer and distributor of petrochemicals in the nation. The stock currently has a Value Score of A and a Zacks Rank #1. You can see . the complete list of today’s Zacks #1 Rank stocks here 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 #1 and a Value Score of A. It has a 3-5 year estimated EPS growth rate of 5%. Preferred Apartment Communities, Inc. ( APTS Quick Quote APTS - Free Report) is a Maryland corporation formed primarily to own and operate multifamily properties. It also, to a lesser extent, owns and operates student housing properties, grocery-anchored shopping centers and strategically located, well leased class A office buildings, all in select targeted markets throughout the United States. The stock currently has a Zacks Rank #2 and a Value Score of A. DCP Midstream Partners, LP ( DCP Quick Quote DCP - Free Report) owns and operates a portfolio of midstream energy assets in the United States. It owns and operates approximately 44 natural gas processing plants and 51,000 miles of natural gas gathering and transmission systems. It serves petrochemical and refining companies, and retail propane distributors. The stock currently has a Zacks Rank #1 and a Value Score of B. 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