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7 Value-Based Low Price-to-Sales Stocks With Room to Run
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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 the 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.
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 all 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 seven of the 14 stocks that qualified the screening:
Universal Forest Products (UFPI - Free Report) engineers, manufactures, treats, distributes and installs lumber, composite wood, plastic and other building products. The stock currently has a Zacks Rank #2 and a Value Score of A. The 3-5 year EPS growth rate for the stock is estimated at 5%.
Rocky Brands (RCKY - Free Report) is a manufacturer and seller of footwear and apparel in the United States, Canada and internationally. It sells products under the Rocky, Georgia Boot, Durango, Lehigh, Creative Recreation and Michelin brands. The stock currently has a Value Score of A and a Zacks Rank #2.
Triple-S Management has a portfolio of managed care and related products in the commercial, Medicare Advantage, and Medicaid markets. The company markets and distributes its products through a network of internal sales force, direct mail, independent brokers and agents, telemarketing staff, traditional media, and digital media, as well as e-commerce. The stock has a Zacks Rank #2 and a Value Score of A. It has an estimated 3–5 year EPS growth rate of 10%.
Rush Enterprises (RUSHA - Free Report) is an integrated retailer of commercial vehicles and related services in the United States. The company operates a network of commercial vehicle dealerships under the Rush Truck Centers name. The company has an estimated 3–5 year EPS growth rate of 15%. The stock currently has a Value Score of B and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sinopec Shanghai Petrochemical Company (SHI - Free Report) is a manufacturer and seller of petrochemical products in the People's Republic of China. The company operates through five segments; Synthetic Fibres, Resins and Plastics, Intermediate Petrochemical Products, Petroleum Products, and Trading of Petrochemical Products. The stock currently has a Value Score of A and a Zacks Rank #1.
Summit Hotel Properties (INN - Free Report) is a real estate investment trust focused on owning premium-branded hotels. This publicly-traded company has efficient operating models primarily in the Upscale segment of the lodging industry. The stock currently has a Zacks Rank #2 and a Value Score of A.
Des Moines, IA-based Principal Financial Group, Inc. (PFG - Free Report) is an investment management company providing retirement, asset management, and insurance products and services to businesses, individuals, and institutional clients worldwide. The stock currently has a Value Score of A and a Zacks Rank #2. It has a 3–5 year EPS growth rate of 6.9%.
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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7 Value-Based Low Price-to-Sales Stocks With Room to Run
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 the 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.
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 all 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 seven of the 14 stocks that qualified the screening:
Universal Forest Products (UFPI - Free Report) engineers, manufactures, treats, distributes and installs lumber, composite wood, plastic and other building products. The stock currently has a Zacks Rank #2 and a Value Score of A. The 3-5 year EPS growth rate for the stock is estimated at 5%.
Rocky Brands (RCKY - Free Report) is a manufacturer and seller of footwear and apparel in the United States, Canada and internationally. It sells products under the Rocky, Georgia Boot, Durango, Lehigh, Creative Recreation and Michelin brands. The stock currently has a Value Score of A and a Zacks Rank #2.
Triple-S Management has a portfolio of managed care and related products in the commercial, Medicare Advantage, and Medicaid markets. The company markets and distributes its products through a network of internal sales force, direct mail, independent brokers and agents, telemarketing staff, traditional media, and digital media, as well as e-commerce. The stock has a Zacks Rank #2 and a Value Score of A. It has an estimated 3–5 year EPS growth rate of 10%.
Rush Enterprises (RUSHA - Free Report) is an integrated retailer of commercial vehicles and related services in the United States. The company operates a network of commercial vehicle dealerships under the Rush Truck Centers name. The company has an estimated 3–5 year EPS growth rate of 15%. The stock currently has a Value Score of B and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sinopec Shanghai Petrochemical Company (SHI - Free Report) is a manufacturer and seller of petrochemical products in the People's Republic of China. The company operates through five segments; Synthetic Fibres, Resins and Plastics, Intermediate Petrochemical Products, Petroleum Products, and Trading of Petrochemical Products. The stock currently has a Value Score of A and a Zacks Rank #1.
Summit Hotel Properties (INN - Free Report) is a real estate investment trust focused on owning premium-branded hotels. This publicly-traded company has efficient operating models primarily in the Upscale segment of the lodging industry. The stock currently has a Zacks Rank #2 and a Value Score of A.
Des Moines, IA-based Principal Financial Group, Inc. (PFG - Free Report) is an investment management company providing retirement, asset management, and insurance products and services to businesses, individuals, and institutional clients worldwide. The stock currently has a Value Score of A and a Zacks Rank #2. It has a 3–5 year EPS growth rate of 6.9%.
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.