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5 Price-to-Sales Stocks to Boost Your Portfolio

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A stock’s Price-to-Sales ratio reflects the amount investors pay 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 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 choice than one with a high ratio.

While the Price-to-Earnings ratio is the first to cross one’s mind when using valuation metrics, Price-to-Sales has emerged as a useful measure in narrowing down the list of valuable stocks.

The Price-to-Sales ratio helps determine the value of stocks that are suffering losses or are in the early cycle of development, generating meager or no profits. Though a loss-making company with a negative Price-to-Earnings ratio falls out of investors’ favor, its Price-to-Sales ratio could indicate the hidden strength in its business. This underrated ratio is also used to identify recovery situations or ensure that a company's growth is not overvalued.

Price-to-Sales is often preferred to Price-to-Earnings, as companies and managements can fiddle with their earnings figure 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 can’t do the trick. One should also analyze other ratios like Price/Earnings, Price/Book, 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: They must all be trading at a minimum of $5.

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 Style Score less than or equal to B: Our research shows that stocks with a Value Style 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 21 stocks that passed the screen:

United Natural Foods Inc. (UNFI - Free Report) , a leading distributor of natural, organic and specialty food and non-food products in the U.S. and Canada, has a Zacks Rank #2 and a Value score of ‘A.’ The company’s expected EPS growth rate for 3–5 years currently stands at 7.8%.

Headquartered in North Reading, MA, Teradyne Inc. (TER - Free Report) is a leading provider of automated test equipment. The company is primarily focused on the semiconductor test market, which generates the bulk of its revenues. The stock currently has a Zacks Rank #1 and a Value score of ‘B’. Also, the 3–5 year EPS growth rate for the stock is estimated at 13.3%.

ePlus inc. (PLUS - Free Report) provides information technology products and services, flexible leasing and financing solutions, and enterprise supply management in the U.S. The company has a Value score of ‘B’ and a projected 3–5 year EPS growth rate of 5%. The stock carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Citizens Financial Group Inc. (CFG - Free Report) is the bank holding company for Citizens Bank, N.A. and Citizens Bank of Pennsylvania that offer retail and commercial banking products and services in the U.S. The stock currently has a Value score of ‘B’ and a Zacks Rank #2. Citizens Financial has a 3–5 years EPS growth rate of 19%.

Zions Bancorp. (ZION - Free Report) is a diversified financial service provider, operating a widespread network of more than 450 banking offices. It currently has a Zacks Rank #2 and a Value score of ‘B’. Zions Bancorp. has a 3–5 years EPS growth rate of 14.2%.

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.


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