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5 Price-to-Sales Stocks to Craft a Strong Investment Portfolio
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Investment in stocks after the analysis of the valuation metrics is considered one of the best practices. When considering 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 cycle of development, generating meager or no profit.
What’s Price-to-Sales Ratio?
While a loss-making company with a negative price-to-earnings ratio falls out of investors’ favor, its price-to-sales could indicate the hidden strength of the 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 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. So, 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 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 also analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
AAR Corp. (AIR - Free Report) , Signet Jewelers (SIG - Free Report) , TravelCenters of America Inc. , DCP Midstream, LP and ePlus inc. (PLUS - Free Report) are some companies that have a low price-to-sales ratio and the potential to offer higher returns.
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: The stocks must be trading at a minimum of $5 or higher.
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 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 12 stocks that qualified the screening:
AAR Corp. provides various products and services to the worldwide aviation and defense industries. Its principal customers include The Boeing Company and Airbus. AIR continues to witness strong performance in its parts supply and program activities. Demand recovery in the commercial and leisure travel market should continue positively contributing to its operating results. The latest agreement with Collins Aerospace may allow it to gain from growth opportunities in the jet market.
AAR Corp. announced a new exclusive distribution agreement with Collins Aerospace to supply de-icers and supporting products to the global aftermarket. This agreement also reflects AAR Corp.’s expansion into the business jet market, thereby reaping the benefits of the growth opportunities in this space. The company expects a continued recovery in parts activities over the next several quarters. AIR currently has a Zacks Rank #2 and a Value Score of B.
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. Signet is often considered the leading retailer of diamond jewelry.
Signet’s Inspiring Brilliance strategy focuses on expanding big banners, boosting service revenues, broadening the Accessible Luxury and Value segments, and accelerating digital commerce. SIG currently has a Value Score of B and sports a Zacks Rank #1. It has a long-term earnings growth rate of 8%.
TravelCenters of America operates travel centers and standalone restaurants in the United States and Canada. Its travel centers offer a range of products and services, including diesel fuel and gasoline, diesel exhaust fluid, truck repair and maintenance, and roadside services.
TravelCenters of America also operates full-service and quick-service restaurants, and various customer amenities. It operates restaurants under the franchise agreement. TA has a Value Score of A and currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
DCP Midstream is a leading energy infrastructure firm. The Fortune 500 firm has a strong and sustainable business strategy, with a diversified portfolio of gathering, logistics, marketing and processing assets across nine states. DCP Midstream’s business model is designed to earn stable fee-based revenues from key midstream assets that are being utilized by shippers and customers over a long period.
Based in Denver, CO, DCP Midstream, a master limited partnership, was created in 2005. The leading midstream energy player is banking on strong fee-based earnings from its long-term contracted business related to logistics and marketing. The DCP stock currently has a Value Score of B and a Zacks Rank #1.
Herndon, VA-based ePlus is a provider of information technology (IT) solutions that enable organizations to optimize their IT environment and supply-chain processes. It operates in the United States and internationally. ePlus serves commercial entities, state and local governments, government contractors, and educational institutions.
ePlus is benefiting from the solid demand for its security, modern data center and networking solutions. The company remains focused on driving sustainable, long-term growth by continuing to expand its capabilities, investing in talent and capturing share in targeted high-growth market segments. The company 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 Price-to-Sales Stocks to Craft a Strong Investment Portfolio
Investment in stocks after the analysis of the valuation metrics is considered one of the best practices. When considering 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 cycle of development, generating meager or no profit.
What’s Price-to-Sales Ratio?
While a loss-making company with a negative price-to-earnings ratio falls out of investors’ favor, its price-to-sales could indicate the hidden strength of the 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 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. So, 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 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 also analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
AAR Corp. (AIR - Free Report) , Signet Jewelers (SIG - Free Report) , TravelCenters of America Inc. , DCP Midstream, LP and ePlus inc. (PLUS - Free Report) are some companies that have a low price-to-sales ratio and the potential to offer higher returns.
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: The stocks must be trading at a minimum of $5 or higher.
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 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 12 stocks that qualified the screening:
AAR Corp. provides various products and services to the worldwide aviation and defense industries. Its principal customers include The Boeing Company and Airbus. AIR continues to witness strong performance in its parts supply and program activities. Demand recovery in the commercial and leisure travel market should continue positively contributing to its operating results. The latest agreement with Collins Aerospace may allow it to gain from growth opportunities in the jet market.
AAR Corp. announced a new exclusive distribution agreement with Collins Aerospace to supply de-icers and supporting products to the global aftermarket. This agreement also reflects AAR Corp.’s expansion into the business jet market, thereby reaping the benefits of the growth opportunities in this space. The company expects a continued recovery in parts activities over the next several quarters. AIR currently has a Zacks Rank #2 and a Value Score of B.
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. Signet is often considered the leading retailer of diamond jewelry.
Signet’s Inspiring Brilliance strategy focuses on expanding big banners, boosting service revenues, broadening the Accessible Luxury and Value segments, and accelerating digital commerce. SIG currently has a Value Score of B and sports a Zacks Rank #1. It has a long-term earnings growth rate of 8%.
TravelCenters of America operates travel centers and standalone restaurants in the United States and Canada. Its travel centers offer a range of products and services, including diesel fuel and gasoline, diesel exhaust fluid, truck repair and maintenance, and roadside services.
TravelCenters of America also operates full-service and quick-service restaurants, and various customer amenities. It operates restaurants under the franchise agreement. TA has a Value Score of A and currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
DCP Midstream is a leading energy infrastructure firm. The Fortune 500 firm has a strong and sustainable business strategy, with a diversified portfolio of gathering, logistics, marketing and processing assets across nine states. DCP Midstream’s business model is designed to earn stable fee-based revenues from key midstream assets that are being utilized by shippers and customers over a long period.
Based in Denver, CO, DCP Midstream, a master limited partnership, was created in 2005. The leading midstream energy player is banking on strong fee-based earnings from its long-term contracted business related to logistics and marketing. The DCP stock currently has a Value Score of B and a Zacks Rank #1.
Herndon, VA-based ePlus is a provider of information technology (IT) solutions that enable organizations to optimize their IT environment and supply-chain processes. It operates in the United States and internationally. ePlus serves commercial entities, state and local governments, government contractors, and educational institutions.
ePlus is benefiting from the solid demand for its security, modern data center and networking solutions. The company remains focused on driving sustainable, long-term growth by continuing to expand its capabilities, investing in talent and capturing share in targeted high-growth market segments. The company 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.