We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
4 Stocks With Low Price-to-Cash Flow Ratio to Buy Now
Read MoreHide Full Article
Against the backdrop of elevated interest rates, underlying inflationary pressure and geopolitical uncertainties in the Middle East, the quest for stability becomes even more challenging. This pivotal juncture underscores the importance of a diversified investment approach.
We believe investment in stocks made on diligent value analysis is one of the best practices. In value investing, investors pick stocks that are cheap but fundamentally sound. There are a number of ratios to identify value stocks but none alone can conclusively determine their inherent potential. Each ratio helps an investor understand a particular aspect of the company’s business.
One such ratio, Price to Cash Flow (or P/CF), can work wonders in stock picking if used prudently. This metric evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per share basis — the lower the number, the better. KB Home (KBH - Free Report) , Gray Television, Inc. (GTN - Free Report) , The ODP Corporation (ODP - Free Report) and General Motors Company (GM - Free Report) boast a low P/CF ratio.
Why P/CF Ratio?
You must be wondering why we are considering this when the most widely used valuation metric is Price/Earnings (or P/E). Well, an important factor that makes P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company’s financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.
However, an investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and take into account the price-to-book ratio, price-to-earnings ratio and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chances of falling into a value trap.
The Bargain Hunting Strategy
Here are the parameters for selecting true-value stocks:
P/CF less than or equal to X-Industry Median.
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.
P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio the more attractive the stock is.
PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio gives a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.
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 of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Here are four of the seven stocks that qualified the screening:
KB Home, one of the largest and most recognized homebuilders in the United States, sports a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 26.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for KB Home's current financial year sales and EPS suggests growth of 5.6% and 13.9%, respectively, from the year-ago period. KBH has a Value Score of A. Shares of KBH have gained 54.7% in the past year.
Gray Television, a television broadcasting company, owns and operates television stations and digital assets in the United States. It sports a Zacks Rank #1 presently. The company delivered a positive earnings surprise in the last reported quarter.
The Zacks Consensus Estimate for Gray Television’s current financial year sales and EPS suggests growth of 18.4% and 477.7%, respectively, from the year-ago period. Gray Television has a Value Score of A. Shares of GTN have declined 6.4% in the past year.
The ODP Corporation, which provides business services and supplies, products and digital workplace technology solutions for small, medium, and enterprise businesses, sports a Zacks Rank #1 currently. The company has a trailing four-quarter earnings surprise of 8.6%, on average.
The Zacks Consensus Estimate for The ODP Corporation’s current financial year sales suggests growth of 7.7% from the year-ago period. The ODP Corporation has a Value Score of A. Shares of ODP have risen 1.8% in the past year.
General Motors, which designs, builds, and sells cars, trucks, crossovers, and automobile parts globally, carries a Zacks Rank #2 presently. The company has a trailing four-quarter earnings surprise of 17.8%, on average.
The Zacks Consensus Estimate for General Motors’ current financial year sales and EPS suggests growth of 1.7% and 22.4%, respectively, from the year-ago period. General Motors has a Value Score of A. Shares of GM have rallied 42.8% in the past year.
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 backtest 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 Research Wizard trial 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
4 Stocks With Low Price-to-Cash Flow Ratio to Buy Now
Against the backdrop of elevated interest rates, underlying inflationary pressure and geopolitical uncertainties in the Middle East, the quest for stability becomes even more challenging. This pivotal juncture underscores the importance of a diversified investment approach.
We believe investment in stocks made on diligent value analysis is one of the best practices. In value investing, investors pick stocks that are cheap but fundamentally sound. There are a number of ratios to identify value stocks but none alone can conclusively determine their inherent potential. Each ratio helps an investor understand a particular aspect of the company’s business.
One such ratio, Price to Cash Flow (or P/CF), can work wonders in stock picking if used prudently. This metric evaluates the market price of a stock relative to the amount of cash flow that the company is generating on a per share basis — the lower the number, the better. KB Home (KBH - Free Report) , Gray Television, Inc. (GTN - Free Report) , The ODP Corporation (ODP - Free Report) and General Motors Company (GM - Free Report) boast a low P/CF ratio.
Why P/CF Ratio?
You must be wondering why we are considering this when the most widely used valuation metric is Price/Earnings (or P/E). Well, an important factor that makes P/CF a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing a company’s financial health.
Analysts caution that a company’s earnings are subject to accounting estimates and management manipulation. Then again, cash flow is quite reliable. Net cash flow unveils how much money a company generates and how effectively management is deploying the same.
A positive cash flow indicates an increase in the company’s liquid assets. This gives the company the means to settle debt, meet its expenses, reinvest in the business, endure downturns and finally undertake shareholder-friendly moves. Negative cash flow implies a decline in the company’s liquidity, which, in turn, lowers its flexibility to support these endeavors.
However, an investment decision solely based on the P/CF metric may not fetch the desired results. To identify stocks that are trading at a discount, you should expand your search criteria and take into account the price-to-book ratio, price-to-earnings ratio and price-to-sales ratio. Adding a favorable Zacks Rank and a Value Score of A or B to your search criteria should lead to even better results as these eliminate the chances of falling into a value trap.
The Bargain Hunting Strategy
Here are the parameters for selecting true-value stocks:
P/CF less than or equal to X-Industry Median.
Price greater than or equal to 5: The stocks must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than 100,000: A substantial trading volume ensures that the stock is easily tradable.
P/E using (F1) less than or equal to X-Industry Median: This parameter shortlists stocks that are trading at a discount or are equal to their peers.
P/B less than or equal to X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
P/S less than or equal to X-Industry Median: The P/S ratio determines how a stock price compares to the company’s sales — the lower the ratio the more attractive the stock is.
PEG less than 1: The ratio is used to determine a stock's value by taking the company's earnings growth into account. The PEG ratio gives a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and that investors need to pay less for a stock that has robust earnings growth prospects.
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 of less than or equal to B: Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Here are four of the seven stocks that qualified the screening:
KB Home, one of the largest and most recognized homebuilders in the United States, sports a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 26.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for KB Home's current financial year sales and EPS suggests growth of 5.6% and 13.9%, respectively, from the year-ago period. KBH has a Value Score of A. Shares of KBH have gained 54.7% in the past year.
Gray Television, a television broadcasting company, owns and operates television stations and digital assets in the United States. It sports a Zacks Rank #1 presently. The company delivered a positive earnings surprise in the last reported quarter.
The Zacks Consensus Estimate for Gray Television’s current financial year sales and EPS suggests growth of 18.4% and 477.7%, respectively, from the year-ago period. Gray Television has a Value Score of A. Shares of GTN have declined 6.4% in the past year.
The ODP Corporation, which provides business services and supplies, products and digital workplace technology solutions for small, medium, and enterprise businesses, sports a Zacks Rank #1 currently. The company has a trailing four-quarter earnings surprise of 8.6%, on average.
The Zacks Consensus Estimate for The ODP Corporation’s current financial year sales suggests growth of 7.7% from the year-ago period. The ODP Corporation has a Value Score of A. Shares of ODP have risen 1.8% in the past year.
General Motors, which designs, builds, and sells cars, trucks, crossovers, and automobile parts globally, carries a Zacks Rank #2 presently. The company has a trailing four-quarter earnings surprise of 17.8%, on average.
The Zacks Consensus Estimate for General Motors’ current financial year sales and EPS suggests growth of 1.7% and 22.4%, respectively, from the year-ago period. General Motors has a Value Score of A. Shares of GM have rallied 42.8% in the past year.
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 backtest 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 Research Wizard trial 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.