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5 Stocks With Low Price-to-Sales Ratios to Elevate Your Portfolio
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Investing in stocks, after analyzing the valuation metrics, is considered one of the best practices. The price-to-earnings ratio has always been the obvious choice when considering the valuation metrics. 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 incurring losses or in an early development cycle, generating meager or no profit.
What’s the Price-to-Sales Ratio?
While a loss-making company with a negative price-to-earnings ratio falls out of investor favor, its price-to-sales can indicate the hidden strength of the business. This underrated ratio is also used to identify a recovery situation or ensure 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. 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 a 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 analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
Peabody Energy (BTU - Free Report) , PriceSmart (PSMT - Free Report) , Hamilton Insurance Group, Ltd. (HG - Free Report) , Precision Drilling (PDS - Free Report) and The Greenbrier Companies, Inc. (GBX - Free Report) are some companies with a low price-to-sales ratio and the potential to offer higher returns.
Screening Parameters
Price to Sales less than the 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 the Median Price to Earnings for its Industry: The lower, the better.
Price to Book (Common Equity) less than the 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 the 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 (Buy): Zacks Rank #1 (Strong Buy) or 2 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 15 stocks that qualified after the screening:
Peabody Energy is engaged in the coal mining business in the United States, Japan, Taiwan, Australia, India, Brazil, Belgium, Chile, France, Indonesia, China, Vietnam, South Korea and Germany. The company operates through the Seaborne Thermal, Seaborne Metallurgical, Powder River Basin, Other U.S. Thermal, and Corporate and Other segments.
BTU supplies coal primarily to electricity generators, industrial facilities and steel manufacturers. It also engages in marketing and brokering of coal from other coal producers; trading coal and freight-related contracts; and providing transportation-related services. BTU has a Value Score of A and presently flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
PriceSmart operates U.S.-style membership shopping warehouse clubs in the United States, Central America, the Caribbean and Colombia. It also operates an e-commerce platform for online ordering, curbside pickup and delivery services. PriceSmart is a highly respected and valued brand in all markets it serves. PSMT is focused on improving sales, operating efficiencies and using technology to enhance its business performance.
Providing omnichannel shopping options for its members, including sales through its app and desktop website, is one of the company’s growth drivers. Its private label membership selection brand continues to be a significant area of focus based on the good value it brings to members. PSMT currently has a Value Score of A and a Zacks Rank #2.
Based in Pembroke, Bermuda, Hamilton provides underwriting specialty insurance and reinsurance risks in Bermuda and internationally. Its three underwriting platforms — Hamilton Global Specialty, Hamilton Re and Hamilton Select — each with dedicated and experienced leadership, provide access to diversified and profitable markets around the world.
Hamilton is focused on underwriting expertise, enhanced by data and technology, to create significant shareholder value. HG has a Value Score of A and currently flaunts a Zacks Rank #1.
Precision Drilling, an oilfield services company, provides onshore drilling, completion, and production services to exploration and production firms in the oil, natural gas and geothermal sectors across North America and the Middle East. In the United States, the company has been focused on optimizing operational performance for its customers while seeking to improve field margins and cash flow generation.
Precision Drilling has a positive long-term outlook for U.S. drilling, supported by the expected launch of Gulf Coast LNG facilities over the next three years and the completion of several major oil and gas mergers and acquisitions. The company's Trans Mountain pipeline expansion is driving stable returns for producers, leading to increased heavy oil drilling activity. Additionally, the imminent start-up of LNG Canada is expected to improve and stabilize natural gas prices, supporting more drilling in the Montney region. PDS has a Value Score of A and sports a Zacks Rank #1 at present.
Greenbrier is a leading international supplier of equipment and services to global freight transportation markets. The company’s broad product lineup, extensive market relationships, supportive customer experience and deep commercial origination capabilities create a unique leadership position and enable ongoing success. These factors provide revenue visibility, while supporting its profitable leasing business, which is growing through disciplined investments in leased railcar fleet and robust lease renewals.
The company is progressing well on its strategic goals. Management expects a sustained financial performance amid healthy market demand. GBX 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 Stocks With Low Price-to-Sales Ratios to Elevate Your Portfolio
Investing in stocks, after analyzing the valuation metrics, is considered one of the best practices. The price-to-earnings ratio has always been the obvious choice when considering the valuation metrics. 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 incurring losses or in an early development cycle, generating meager or no profit.
What’s the Price-to-Sales Ratio?
While a loss-making company with a negative price-to-earnings ratio falls out of investor favor, its price-to-sales can indicate the hidden strength of the business. This underrated ratio is also used to identify a recovery situation or ensure 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. 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 a 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 analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
Peabody Energy (BTU - Free Report) , PriceSmart (PSMT - Free Report) , Hamilton Insurance Group, Ltd. (HG - Free Report) , Precision Drilling (PDS - Free Report) and The Greenbrier Companies, Inc. (GBX - Free Report) are some companies with a low price-to-sales ratio and the potential to offer higher returns.
Screening Parameters
Price to Sales less than the 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 the Median Price to Earnings for its Industry: The lower, the better.
Price to Book (Common Equity) less than the 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 the 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 (Buy): Zacks Rank #1 (Strong Buy) or 2 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 15 stocks that qualified after the screening:
Peabody Energy is engaged in the coal mining business in the United States, Japan, Taiwan, Australia, India, Brazil, Belgium, Chile, France, Indonesia, China, Vietnam, South Korea and Germany. The company operates through the Seaborne Thermal, Seaborne Metallurgical, Powder River Basin, Other U.S. Thermal, and Corporate and Other segments.
BTU supplies coal primarily to electricity generators, industrial facilities and steel manufacturers. It also engages in marketing and brokering of coal from other coal producers; trading coal and freight-related contracts; and providing transportation-related services. BTU has a Value Score of A and presently flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
PriceSmart operates U.S.-style membership shopping warehouse clubs in the United States, Central America, the Caribbean and Colombia. It also operates an e-commerce platform for online ordering, curbside pickup and delivery services. PriceSmart is a highly respected and valued brand in all markets it serves. PSMT is focused on improving sales, operating efficiencies and using technology to enhance its business performance.
Providing omnichannel shopping options for its members, including sales through its app and desktop website, is one of the company’s growth drivers. Its private label membership selection brand continues to be a significant area of focus based on the good value it brings to members. PSMT currently has a Value Score of A and a Zacks Rank #2.
Based in Pembroke, Bermuda, Hamilton provides underwriting specialty insurance and reinsurance risks in Bermuda and internationally. Its three underwriting platforms — Hamilton Global Specialty, Hamilton Re and Hamilton Select — each with dedicated and experienced leadership, provide access to diversified and profitable markets around the world.
Hamilton is focused on underwriting expertise, enhanced by data and technology, to create significant shareholder value. HG has a Value Score of A and currently flaunts a Zacks Rank #1.
Precision Drilling, an oilfield services company, provides onshore drilling, completion, and production services to exploration and production firms in the oil, natural gas and geothermal sectors across North America and the Middle East. In the United States, the company has been focused on optimizing operational performance for its customers while seeking to improve field margins and cash flow generation.
Precision Drilling has a positive long-term outlook for U.S. drilling, supported by the expected launch of Gulf Coast LNG facilities over the next three years and the completion of several major oil and gas mergers and acquisitions. The company's Trans Mountain pipeline expansion is driving stable returns for producers, leading to increased heavy oil drilling activity. Additionally, the imminent start-up of LNG Canada is expected to improve and stabilize natural gas prices, supporting more drilling in the Montney region. PDS has a Value Score of A and sports a Zacks Rank #1 at present.
Greenbrier is a leading international supplier of equipment and services to global freight transportation markets. The company’s broad product lineup, extensive market relationships, supportive customer experience and deep commercial origination capabilities create a unique leadership position and enable ongoing success. These factors provide revenue visibility, while supporting its profitable leasing business, which is growing through disciplined investments in leased railcar fleet and robust lease renewals.
The company is progressing well on its strategic goals. Management expects a sustained financial performance amid healthy market demand. GBX 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.