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5 Bargain Stocks With Low P/S Ratios & High Growth Return Potential
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Key Takeaways
The P/S ratio helps uncover value in early growth or unprofitable firms wherein earnings are minimal.
Value picks were screened using P/S, P/E, P/B, debt/equity, price floor, the Zacks Rank and the Value Score.
JAKK, GDOT, SIG, ROCK and PFE show low price-to-sales ratios with solid upside potential.
Investing in stocks based on valuation metrics is considered a smart strategy. The price-to-earnings (P/E) ratio is often the go-to metric due to its simplicity and ease of use. However, the price-to-sales (P/S) ratio is more useful for evaluating stocks of companies that are unprofitable or in early growth stages, as it helps assess value when earnings are minimal or non-existent.
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 ratio 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 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 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.
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 22 stocks that qualified the screening:
JAKKS Pacific is a multi-brand company that designs and markets a broad range of toys and consumer products. JAKK has been benefiting from acquisitions, a solid international footprint, its focus on innovation, and collaborations with popular brands and movie franchisees. JAKKS Pacific has emerged as a diversified consumer products company, buoyed by numerous acquisitions over the past several years.
The company realized the importance of online retailing and focused on 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 to capitalize on this continued shift to online. JAKK currently sports a Zacks Rank #1 and has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Green Dot is a pro-consumer bank holding company and personal banking provider. The company offers products and services directly to customers through a large-scale omni-channel national distribution platform. Green Dot is a leader in prepaid cards and Banking-as-a-Service (BaaS), partnering with major companies like Walmart, Uber and Apple. Its asset-light model ensures high interchange fees and reduced reliance on interest income, keeping the balance sheet strong.
With low debt and significant cash reserves, Green Dot is well-positioned for growth initiatives. It is expanding its addressable market with the help of its BaaS account programs. Green Dot’s long-standing relationship with Walmart is a key driver of its operating revenues. GDOT currently flaunts a Zacks Rank #1 and has a Value Score of A.
Hamilton, Bermuda-based Signet Jewelers is a retailer of diamond jewelry, watches and other products. The company operates in the United States, Canada, the U.K., the Republic of Ireland and the Channel Islands. It is often considered to be the leading retailer of diamond jewelry. Signet continues to demonstrate strength in key jewelry segments, with bridal and fashion jewelry driving growth.
Inventory management remains a significant strength for Signet. Agile inventory management has been boosting SIG’s sales, while strategic restructuring and real estate optimization are enhancing its operational efficiency. Signet has implemented significant cost-saving initiatives, leading to a notable improvement in its financial performance. By optimizing its real estate portfolio, Signet aims to improve sales transference across remaining stores and enhance overall profitability. The strategic moves in real estate not only support current operational performance but also pave the way for growth as the retail landscape evolves. SIG has a Value Score of A and a Zacks Rank #2 at present.
Gibraltar manufactures and distributes products to the industrial and building market. The products range from ventilation and expanded metal to mail storage solutions, as well as rain dispersion products and solutions. ROCK has been benefiting from its focus on operational improvements and the Three-Pillar Strategy. The company continues to accelerate the implementation of three pillars through portfolio management initiatives, improvement of the business system and strengthening of the organization.
Gibraltar continues to accelerate its 80/20 initiatives in products and operations, optimizing the supply chain with market price actions. The company's focus on the 80/20 initiative has propelled its Residential segment’s performance. Also, the high demand for agricultural facilities suggests a solid growth runway, especially for high-tech produce farms. ROCK currently has a Value Score of A and a Zacks Rank #2.
Based in New York, Pfizer markets a wide range of drugs and vaccines. The company’s Biopharma reporting segment includes three broad therapeutic areas — Primary Care, Specialty Care and Oncology. PFE has committed significant resources toward developing treatments in oncology, internal medicine, rare diseases, immunology, inflammation, vaccines and hospitals.
Pfizer expects better non-COVID operational revenue growth in the upcoming quarters, driven by its products like Vyndaqel and Prevnar; launches like Abrysvo, Velsipity and Penbraya; and newly acquired products, including those acquired from Seagen. PFE 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.
Image: Bigstock
5 Bargain Stocks With Low P/S Ratios & High Growth Return Potential
Key Takeaways
Investing in stocks based on valuation metrics is considered a smart strategy. The price-to-earnings (P/E) ratio is often the go-to metric due to its simplicity and ease of use. However, the price-to-sales (P/S) ratio is more useful for evaluating stocks of companies that are unprofitable or in early growth stages, as it helps assess value when earnings are minimal or non-existent.
JAKKS Pacific (JAKK - Free Report) , Green Dot (GDOT - Free Report) , Signet Jewelers (SIG - Free Report) , Gibraltar Industries (ROCK - Free Report) and Pfizer (PFE - Free Report) are some companies with low price-to-sales ratios and the potential to offer higher returns.
What is 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 ratio 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 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 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.
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 22 stocks that qualified the screening:
JAKKS Pacific is a multi-brand company that designs and markets a broad range of toys and consumer products. JAKK has been benefiting from acquisitions, a solid international footprint, its focus on innovation, and collaborations with popular brands and movie franchisees. JAKKS Pacific has emerged as a diversified consumer products company, buoyed by numerous acquisitions over the past several years.
The company realized the importance of online retailing and focused on 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 to capitalize on this continued shift to online. JAKK currently sports a Zacks Rank #1 and has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Green Dot is a pro-consumer bank holding company and personal banking provider. The company offers products and services directly to customers through a large-scale omni-channel national distribution platform. Green Dot is a leader in prepaid cards and Banking-as-a-Service (BaaS), partnering with major companies like Walmart, Uber and Apple. Its asset-light model ensures high interchange fees and reduced reliance on interest income, keeping the balance sheet strong.
With low debt and significant cash reserves, Green Dot is well-positioned for growth initiatives. It is expanding its addressable market with the help of its BaaS account programs. Green Dot’s long-standing relationship with Walmart is a key driver of its operating revenues. GDOT currently flaunts a Zacks Rank #1 and has a Value Score of A.
Hamilton, Bermuda-based Signet Jewelers is a retailer of diamond jewelry, watches and other products. The company operates in the United States, Canada, the U.K., the Republic of Ireland and the Channel Islands. It is often considered to be the leading retailer of diamond jewelry. Signet continues to demonstrate strength in key jewelry segments, with bridal and fashion jewelry driving growth.
Inventory management remains a significant strength for Signet. Agile inventory management has been boosting SIG’s sales, while strategic restructuring and real estate optimization are enhancing its operational efficiency. Signet has implemented significant cost-saving initiatives, leading to a notable improvement in its financial performance. By optimizing its real estate portfolio, Signet aims to improve sales transference across remaining stores and enhance overall profitability. The strategic moves in real estate not only support current operational performance but also pave the way for growth as the retail landscape evolves. SIG has a Value Score of A and a Zacks Rank #2 at present.
Gibraltar manufactures and distributes products to the industrial and building market. The products range from ventilation and expanded metal to mail storage solutions, as well as rain dispersion products and solutions. ROCK has been benefiting from its focus on operational improvements and the Three-Pillar Strategy. The company continues to accelerate the implementation of three pillars through portfolio management initiatives, improvement of the business system and strengthening of the organization.
Gibraltar continues to accelerate its 80/20 initiatives in products and operations, optimizing the supply chain with market price actions. The company's focus on the 80/20 initiative has propelled its Residential segment’s performance. Also, the high demand for agricultural facilities suggests a solid growth runway, especially for high-tech produce farms. ROCK currently has a Value Score of A and a Zacks Rank #2.
Based in New York, Pfizer markets a wide range of drugs and vaccines. The company’s Biopharma reporting segment includes three broad therapeutic areas — Primary Care, Specialty Care and Oncology. PFE has committed significant resources toward developing treatments in oncology, internal medicine, rare diseases, immunology, inflammation, vaccines and hospitals.
Pfizer expects better non-COVID operational revenue growth in the upcoming quarters, driven by its products like Vyndaqel and Prevnar; launches like Abrysvo, Velsipity and Penbraya; and newly acquired products, including those acquired from Seagen. PFE 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.