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Build a Winning Portfolio With These 5 Bargain Price-to-Sales Stocks
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Investing in stocks based on valuation metrics is considered a smart strategy. The price-to-earnings (P/E) ratio is often the go-to metric due to its simplicity and ease of use. However, the price-to-sales (P/S) ratio is more useful for evaluating stocks of companies that are unprofitable or in early growth stages, as it helps assess value when earnings are minimal or non-existent.
Advance Auto Parts (AAP - Free Report) , PagSeguro Digital (PAGS - Free Report) , Gibraltar Industries (ROCK - Free Report) , The Greenbrier Companies, Inc. (GBX - Free Report) and ChampionX Corporation (CHX - Free Report) are some companies with a low price-to-sales ratio and the potential to offer higher returns.
What is 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 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.
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 19 stocks that qualified the screening:
Advance Auto Parts operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts (excluding tires), accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy-duty trucks. The company’s strategic efforts to streamline its supply chain through a unified network and implement a warehouse management system across major distribution centers are promising. The conversion of smaller legacy DCs into market hubs aims to optimize infrastructure, improve inventory productivity and reduce costs.
AAP is focused on enhancing operational efficiency and asset utilization while pursuing operating cost reductions. Efforts to consolidate its supply chain into a single unified network bode well. It is prioritizing the optimization of existing store operations over new openings to drive growth and maximize returns on invested capital. AAP currently has a Zacks Rank #2 and a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
São Paulo, Brazil-based PagSeguro Digital provides financial technology solutions and services for micro-merchants, and small and medium-sized businesses in Brazil and internationally. The company offers multiple digital payment solutions, in-person payments via point-of-sales devices and prepaid card services. PagSeguro Digital has been diversifying its payment business and 2022 marked the consolidation of its HUBs initiative to extend its best-in-class services to small and mid-sized clients.
The company’s disciplined capital allocation has significantly aided operating and investing cash flow generation, positioning it to explore opportunities in payments and financial services in Brazil in the coming years. PAGS stock has a Value Score of A and currently has a Zacks Rank #2.
Buffalo, NY-based Gibraltar Industries manufactures and distributes products to the industrial and buildings market. The products range from ventilation and expanded metal to mail storage solutions and rain dispersion products and solutions. ROCK has been benefiting from its focus on operational improvements and the Three-Pillar Strategy. The company continues to accelerate the implementation of three pillars through portfolio management initiatives, improvement of the business system and strengthening of the organization.
Gibraltar continues to accelerate its 80/20 initiatives in products and operations, optimizing the supply chain with market price actions. The company's focus on the 80/20 initiative has propelled its Residential Segment performance. Also, the high demand for agricultural facilities suggests a solid growth runway, especially for high-tech produce farms. ROCK has a Value Score of B and carries a Zacks Rank #2 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 goals. Management expects a sustained financial performance amid healthy market demand. GBX has a Value Score of A and currently sports a Zacks Rank #1.
The Woodlands, TX-based ChampionX is a global leader in chemistry solutions, artificial lift systems and advanced equipment, specializing in technologies that enhance oil and gas production. The company provides innovative solutions that improve efficiency, safety and sustainability throughout the energy lifecycle.
With a strong focus on digitalization, ChampionX offers real-time emission monitoring and data-driven insights to optimize operations. Its expertise and cutting-edge products support energy companies in maximizing production, improving transportation and reducing environmental impact worldwide. CHX currently has a Value Score of B 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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Build a Winning Portfolio With These 5 Bargain Price-to-Sales Stocks
Investing in stocks based on valuation metrics is considered a smart strategy. The price-to-earnings (P/E) ratio is often the go-to metric due to its simplicity and ease of use. However, the price-to-sales (P/S) ratio is more useful for evaluating stocks of companies that are unprofitable or in early growth stages, as it helps assess value when earnings are minimal or non-existent.
Advance Auto Parts (AAP - Free Report) , PagSeguro Digital (PAGS - Free Report) , Gibraltar Industries (ROCK - Free Report) , The Greenbrier Companies, Inc. (GBX - Free Report) and ChampionX Corporation (CHX - Free Report) are some companies with a low price-to-sales ratio and the potential to offer higher returns.
What is 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 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.
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 19 stocks that qualified the screening:
Advance Auto Parts operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts (excluding tires), accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy-duty trucks. The company’s strategic efforts to streamline its supply chain through a unified network and implement a warehouse management system across major distribution centers are promising. The conversion of smaller legacy DCs into market hubs aims to optimize infrastructure, improve inventory productivity and reduce costs.
AAP is focused on enhancing operational efficiency and asset utilization while pursuing operating cost reductions. Efforts to consolidate its supply chain into a single unified network bode well. It is prioritizing the optimization of existing store operations over new openings to drive growth and maximize returns on invested capital. AAP currently has a Zacks Rank #2 and a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
São Paulo, Brazil-based PagSeguro Digital provides financial technology solutions and services for micro-merchants, and small and medium-sized businesses in Brazil and internationally. The company offers multiple digital payment solutions, in-person payments via point-of-sales devices and prepaid card services. PagSeguro Digital has been diversifying its payment business and 2022 marked the consolidation of its HUBs initiative to extend its best-in-class services to small and mid-sized clients.
The company’s disciplined capital allocation has significantly aided operating and investing cash flow generation, positioning it to explore opportunities in payments and financial services in Brazil in the coming years. PAGS stock has a Value Score of A and currently has a Zacks Rank #2.
Buffalo, NY-based Gibraltar Industries manufactures and distributes products to the industrial and buildings market. The products range from ventilation and expanded metal to mail storage solutions and rain dispersion products and solutions. ROCK has been benefiting from its focus on operational improvements and the Three-Pillar Strategy. The company continues to accelerate the implementation of three pillars through portfolio management initiatives, improvement of the business system and strengthening of the organization.
Gibraltar continues to accelerate its 80/20 initiatives in products and operations, optimizing the supply chain with market price actions. The company's focus on the 80/20 initiative has propelled its Residential Segment performance. Also, the high demand for agricultural facilities suggests a solid growth runway, especially for high-tech produce farms. ROCK has a Value Score of B and carries a Zacks Rank #2 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 goals. Management expects a sustained financial performance amid healthy market demand. GBX has a Value Score of A and currently sports a Zacks Rank #1.
The Woodlands, TX-based ChampionX is a global leader in chemistry solutions, artificial lift systems and advanced equipment, specializing in technologies that enhance oil and gas production. The company provides innovative solutions that improve efficiency, safety and sustainability throughout the energy lifecycle.
With a strong focus on digitalization, ChampionX offers real-time emission monitoring and data-driven insights to optimize operations. Its expertise and cutting-edge products support energy companies in maximizing production, improving transportation and reducing environmental impact worldwide. CHX currently has a Value Score of B 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