For Immediate Release
Chicago, IL – April 8, 2020 – Stocks in this week’s article are MGM Growth Properties LLC (MGP - Free Report) , Darling Ingredients Inc. (DAR - Free Report) , Rocky Brands (RCKY - Free Report) , Hilltop Holdings Inc. (HTH - Free Report) and Piper Jaffray Companies (PIPR - Free Report) .
Low Price-to-Sales Stocks to Consider Amid Coronavirus Woes
The coronavirus menace has not only wreaked havoc on communities but is affecting all business sectors, with social distancing being the only way to contain it. Apart dealing a solid blow to stock markets, the deadly virus has dented demand and supply across industries and nations. It has also led to slowing down of production activities and temporary closure of brick-and-mortar locations. As a result, U.S. consumer confidence in March 2020 fell to the lowest level since June 2017.
There remains immense uncertainty regarding how long the effects of COVID-19 will last. However, policymakers are leaving no stone unturned — slashing benchmark interest rate and announcing stimulus plan — to halt the economic meltdown. President Trump signed a $2-trillion economic relief package aimed at assisting workers, small industries and distressed companies on the brink of extinction. To further lessen the coronavirus-inflicted damage, the President is pushing for an infrastructure package, citing low interest rate environment.
While the world is busy fighting the novel coronavirus, there are several unanswered question on which investment strategy suits best at this time. Is it time to get rid of stocks in your portfolio and wait for a conducive investing environment? Or is it time to spot stocks that are trading cheap but are fundamentally sound considering their long-term prospects?
A Strategy to Suit the Situation
Investment in stocks made on 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 its 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 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 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.
For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/858748/7-low-pricetosales-stocks-to-consider-amid-coronavirus-woes
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