5 Low Price-to-Sales Stocks Poised to Deliver Robust Value
Investment in stocks after analyzing the valuation metrics is considered one of the best practices. When considering the valuation metrics, the price-to-earnings ratio has always been the obvious choice. 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 that are 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.
G-III Apparel, Ltd. GIII, JAKKS Pacific JAKK, Titan Machinery TITN, Charles River Associates CRAI and Plains GP Holdings, L.P. PAGP 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 16 stocks that qualified for the screening:
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private-label brands. The company’s portfolio includes outerwear, dresses, sportswear, swimwear, women’s suits and women’s performance wear, as well as women’s handbags, footwear, small leather goods, cold weather accessories and luggage.
This New York-based company has a portfolio of more than 30 licensed and proprietary brands, including five major global brands — DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld. G-III Apparel's owned brands include Donna Karan, DKNY, Vilebrequin, G. H. Bass, Andrew Marc, Marc New York, Eliza J and Jessica Howard. GIII currently has a Value Score of B and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
JAKKS Pacific is a multi-brand company that has been designing and marketing a broad range of toys and consumer products. It has been benefiting from strategic acquisitions, a solid international footprint, a focus on innovation, and collaborations with popular brands and movie franchisees. JAKKS Pacific has emerged as a diversified consumer products company, buoyed by a string of acquisitions over the past several years.
The company realizes the importance of online retailing and shifted focus to aggressively boosting online sales. JAKKS Pacific has been committed to creating digital experiences for online shoppers, such as videos, 360-degree product images and enhanced web pages. It continues to modify its sales and logistics capabilities in order to capitalize on this continued shift to online. JAKK currently has a Zacks Rank #1 and a Value Score of A.
Based in West Fargo, ND, Titan Machinery owns and operates a network of full-service agricultural and construction equipment stores in the United States and Europe. The company offers a diversified mix of agricultural, construction and consumer products, with dealerships in the upper Midwest. The company mainly services farmers, contractors, ranchers and commercial applicators.
Titan Machinery has been gaining from acquisitions completed in the past two years. Its construction business has been outperforming expectations, which is expected to continue throughout 2023. TITN has a Value Score of B and currently sports a Zacks Rank #1.
Charles River is one of the leading global consulting firms. This Boston, MA-based company is engaged in providing economic, financial and management consulting services. Its professional team has helped maintain a solid reputation for premium consulting services. Charles River has a widely diversified business, with service offerings across areas of functional expertise, client base and geographical regions.
The solid international network allows Charles River to work with the world's leading professionals on multiple issues. We believe that the company’s international operations help expand its geographic footprint and contribute to the top line. CRAI currently has a Value Score of B and a Zacks Rank #2.
Houston, TX-based Plains GP is the parent company of Plain All American Pipeline L.P. It owns and operates midstream energy infrastructure in the United States and Canada. The company engages in the transportation of crude oil and NGLs on pipelines, gathering systems and trucks. Its recent bolt-on acquisition in the Permian, which will complement its existing geographic footprint and updates regarding its NGL segment businesses, bodes well.
Plains GP’s disciplined capital allocation positions it for growth. This is highlighted by the company’s efforts to improve the long-term durability and quality of the cash flow stream in the NGL segment by sanctioning the debottlenecking project at the Fort Sask complex and extending the duration of contracts across its NGL portfolio. PAGP currently has a Value Score of A and sports a Zacks Rank #1.
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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.
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Charles River Associates (CRAI) : Free Stock Analysis Report
JAKKS Pacific, Inc. (JAKK) : Free Stock Analysis Report
Titan Machinery Inc. (TITN) : Free Stock Analysis Report
G-III Apparel Group, LTD. (GIII) : Free Stock Analysis Report
Plains Group Holdings, L.P. (PAGP) : Free Stock Analysis Report
