For Immediate Release
Chicago, IL – February 7, 2018 - Stocks in this week’s article Citizens Financial Group Inc. (CFG - Free Report) , Hitachi Ltd. (HTHIY - Free Report) , Volkswagen AG (VLKAY - Free Report) , Kulicke and Soffa Industries Inc. (KLIC - Free Report) and The Greenbrier Companies, Inc. (GBX - Free Report) .
Promising Low Price-to-Sales for Good Results
When considering valuation metrics, Price-to-Earnings ratio has always been the obvious choice as 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.
A stock’s Price-to-Sales ratio reflects how much investors are paying 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 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 versus 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.
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 its business. This underrated ratio is also used to identify a recovery situation or ensure that a company's growth is not overvalued.
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 and Debt/Equity before arriving at any investment decision.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/291385/7-promising-low-pricetosales-stocks-for-good-returns
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