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5 Low Price-to-Sales Stocks to Get the Best of the Market
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Investment in stocks after analyzing the valuation metrics is considered one of the best practices. When considering the 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.
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 20 stocks that qualified for the screening:
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private-label brands. The company’s portfolio includes outerwear, dresses, sportswear, swimwear, women’s suits and women’s performance wear, and women’s handbags, footwear, small leather goods, cold weather accessories and luggage.
This New York-based company has a portfolio of more than 30 licensed and proprietary brands, including five major global brands — DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld. G-III Apparel's owned brands include Donna Karan, DKNY, Vilebrequin, G. H. Bass, Andrew Marc, Marc New York, Eliza J and Jessica Howard. GIII currently has a Value Score of A and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Marathon Oil is a leading oil and natural gas exploration and production (‘E&P’) company with operations in the United States and Africa. This Houston, Texas-based company’s strategy over the last few years has been to reposition its upstream asset portfolio, build an integrated natural gas business by investing in liquefied natural gas assets, and strengthen its balance sheet. Meaningful progress has been made on each front.
As part of its asset-repositioning program, the company has divested a number of non-core upstream properties in the last few years and has made significant progress toward establishing new upstream core areas like Equatorial Guinea. MRO currently has a Value Score of A and a Zacks Rank #2.
JAKKS Pacific is a multi-brand company designing and marketing a broad range of toys and consumer products. It has been benefiting from strategic acquisitions, a solid international footprint, a focus on innovation, and collaborations with popular brands and movie franchisees. JAKKS Pacific 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 focus to aggressively boosting online sales. JAKKS Pacific has been committed to creating digital experiences for online shoppers, such as videos, 360-degree product images and enhanced web pages. It continues to modify its sales and logistics capabilities in order to capitalize on this continued shift to online. JAKK currently has a Zacks Rank #2 and a Value Score of A.
Based in West Fargo, ND, Titan Machinery owns and operates a network of full-service agricultural and construction equipment stores in the United States and Europe. The company offers a diversified mix of agricultural, construction and consumer products, with dealerships in the upper Midwest. The company mainly services farmers, contractors, ranchers and commercial applicators.
Titan Machinery has been gaining from acquisitions completed in the past two years. Its construction business has been outperforming expectations, which is expected to continue throughout 2023. TITN currently has a Value Score of A and a Zacks Rank #2.
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’s Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, townhomes and condominiums. The company’s Financial Services operations offer mortgage banking, title and insurance services to homebuyers. The segment generates revenues mainly from insurance commissions and the provision of title services.
KBH’s growth is driven by the Returns-Focused Growth Plan, which includes the execution of its core business strategy, improving asset efficiency and monetizing significant deferred tax assets. Its long-term growth is attributable to the increase in backlog and its ability to match housing starts to net orders. Also, KB Home’s robust land acquisition strategies assist it in reducing debt, and boosting the gross margin and returns. The KBH stock 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 to Get the Best of the Market
Investment in stocks after analyzing the valuation metrics is considered one of the best practices. When considering the 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.
G-III Apparel, Ltd. (GIII - Free Report) , Marathon Oil Corp. (MRO - Free Report) , JAKKS Pacific (JAKK - Free Report) , Titan Machinery (TITN - Free Report) and KB Home (KBH - Free Report) are some companies with a low price-to-sales ratio and 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 20 stocks that qualified for the screening:
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private-label brands. The company’s portfolio includes outerwear, dresses, sportswear, swimwear, women’s suits and women’s performance wear, and women’s handbags, footwear, small leather goods, cold weather accessories and luggage.
This New York-based company has a portfolio of more than 30 licensed and proprietary brands, including five major global brands — DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld. G-III Apparel's owned brands include Donna Karan, DKNY, Vilebrequin, G. H. Bass, Andrew Marc, Marc New York, Eliza J and Jessica Howard. GIII currently has a Value Score of A and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Marathon Oil is a leading oil and natural gas exploration and production (‘E&P’) company with operations in the United States and Africa. This Houston, Texas-based company’s strategy over the last few years has been to reposition its upstream asset portfolio, build an integrated natural gas business by investing in liquefied natural gas assets, and strengthen its balance sheet. Meaningful progress has been made on each front.
As part of its asset-repositioning program, the company has divested a number of non-core upstream properties in the last few years and has made significant progress toward establishing new upstream core areas like Equatorial Guinea. MRO currently has a Value Score of A and a Zacks Rank #2.
JAKKS Pacific is a multi-brand company designing and marketing a broad range of toys and consumer products. It has been benefiting from strategic acquisitions, a solid international footprint, a focus on innovation, and collaborations with popular brands and movie franchisees. JAKKS Pacific 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 focus to aggressively boosting online sales. JAKKS Pacific has been committed to creating digital experiences for online shoppers, such as videos, 360-degree product images and enhanced web pages. It continues to modify its sales and logistics capabilities in order to capitalize on this continued shift to online. JAKK currently has a Zacks Rank #2 and a Value Score of A.
Based in West Fargo, ND, Titan Machinery owns and operates a network of full-service agricultural and construction equipment stores in the United States and Europe. The company offers a diversified mix of agricultural, construction and consumer products, with dealerships in the upper Midwest. The company mainly services farmers, contractors, ranchers and commercial applicators.
Titan Machinery has been gaining from acquisitions completed in the past two years. Its construction business has been outperforming expectations, which is expected to continue throughout 2023. TITN currently has a Value Score of A and a Zacks Rank #2.
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’s Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, townhomes and condominiums. The company’s Financial Services operations offer mortgage banking, title and insurance services to homebuyers. The segment generates revenues mainly from insurance commissions and the provision of title services.
KBH’s growth is driven by the Returns-Focused Growth Plan, which includes the execution of its core business strategy, improving asset efficiency and monetizing significant deferred tax assets. Its long-term growth is attributable to the increase in backlog and its ability to match housing starts to net orders. Also, KB Home’s robust land acquisition strategies assist it in reducing debt, and boosting the gross margin and returns. The KBH stock 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.