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Pick These 7 Low Price-to-Sales Ratio Stocks for Solid Returns
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A stock’s price-to-sales ratio reflects how much investors are paying for each dollar of revenues generated by a 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.
Investment in stocks made on analysis of valuation metrics is usually considered one of the best practices. 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.
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 15 stocks that qualified the screening:
Big Lots Inc. is a broad-line closeout retailer in the United States. The company offers products under various merchandising categories, which include Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, Electronics and Toys & Accessories. The stock currently has a Zacks Rank #2 and a Value Score of A. It also has an estimated 3–5 year EPS growth rate of 12%.
Silgan Holdings Inc. (SLGN - Free Report) is a leading supplier of rigid packaging for consumer goods products. Its products are used in diverse end markets. It is the largest metal-container supplier for food products in North America. Silgan operates 100 manufacturing facilities in North and South America, Europe and Asia. This Zacks Rank #1 company has a Value Score of B. It has an estimated 3–5 year EPS growth rate of 5%.
China Distance Education Holdings Limited provides online and offline education services, and sells related products in the People's Republic of China. It operates in three segments: Professional Education Services, Business Start-Up Training Services, and The Sale of Learning Simulation Software. The stock currently has a Value Score of A and a Zacks Rank #1. It has an estimated 3–5 year EPS growth rate of 15%.
Millersburg, PA-based Mid Penn Bancorp, Inc. (MPB - Free Report) is a bank holding company for Mid Penn Bank that provides commercial banking services to individuals, partnerships, non-profit organizations, and corporations. The company offers various time and demand deposit products, including checking accounts, savings accounts, clubs, money market deposit accounts, certificates of deposit, and IRAs. The stock currently has a Value Score of A and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tutor Perini Corporation (TPC - Free Report) is a construction company, providing diversified general contracting, construction management and design-build services to private customers and public agencies worldwide. The company operates through three segments: Civil, Building, and Specialty Contractors. The stock currently has a Value Score of A and a Zacks Rank #1.
National General Holdings Corp is a specialty personal lines insurance holding company. It provides various insurance products and services in the United States, Bermuda, Luxembourg and Sweden. The company was formerly known as American Capital Acquisition Corporation. The stock currently has a Zacks Rank #1 and a Value Score of A.
AZZ Inc. (AZZ - Free Report) provides galvanizing and metal coating solutions, welding solutions, specialty electrical equipment, and highly engineered services to power generation, transmission, distribution, refining, and industrial markets. The company operates through two segments, Energy and Metal Coatings. The stock currently has a Zacks Rank #2 and a Value Score of A.
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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Pick These 7 Low Price-to-Sales Ratio Stocks for Solid Returns
A stock’s price-to-sales ratio reflects how much investors are paying for each dollar of revenues generated by a 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.
Investment in stocks made on analysis of valuation metrics is usually considered one of the best practices. 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.
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 15 stocks that qualified the screening:
Big Lots Inc. is a broad-line closeout retailer in the United States. The company offers products under various merchandising categories, which include Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, Electronics and Toys & Accessories. The stock currently has a Zacks Rank #2 and a Value Score of A. It also has an estimated 3–5 year EPS growth rate of 12%.
Silgan Holdings Inc. (SLGN - Free Report) is a leading supplier of rigid packaging for consumer goods products. Its products are used in diverse end markets. It is the largest metal-container supplier for food products in North America. Silgan operates 100 manufacturing facilities in North and South America, Europe and Asia. This Zacks Rank #1 company has a Value Score of B. It has an estimated 3–5 year EPS growth rate of 5%.
China Distance Education Holdings Limited provides online and offline education services, and sells related products in the People's Republic of China. It operates in three segments: Professional Education Services, Business Start-Up Training Services, and The Sale of Learning Simulation Software. The stock currently has a Value Score of A and a Zacks Rank #1. It has an estimated 3–5 year EPS growth rate of 15%.
Millersburg, PA-based Mid Penn Bancorp, Inc. (MPB - Free Report) is a bank holding company for Mid Penn Bank that provides commercial banking services to individuals, partnerships, non-profit organizations, and corporations. The company offers various time and demand deposit products, including checking accounts, savings accounts, clubs, money market deposit accounts, certificates of deposit, and IRAs. The stock currently has a Value Score of A and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tutor Perini Corporation (TPC - Free Report) is a construction company, providing diversified general contracting, construction management and design-build services to private customers and public agencies worldwide. The company operates through three segments: Civil, Building, and Specialty Contractors. The stock currently has a Value Score of A and a Zacks Rank #1.
National General Holdings Corp is a specialty personal lines insurance holding company. It provides various insurance products and services in the United States, Bermuda, Luxembourg and Sweden. The company was formerly known as American Capital Acquisition Corporation. The stock currently has a Zacks Rank #1 and a Value Score of A.
AZZ Inc. (AZZ - Free Report) provides galvanizing and metal coating solutions, welding solutions, specialty electrical equipment, and highly engineered services to power generation, transmission, distribution, refining, and industrial markets. The company operates through two segments, Energy and Metal Coatings. The stock currently has a Zacks Rank #2 and a Value Score of A.
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.