The current bull market has come at a time when the traditions of Wall Street have changed significantly. Some of these changes, like the transition from on-the-floor traders to algorithm-based digital trading, are a simple result of evolving technology. Others, such as a shift in our preferred methods for determining value and growth potential, have been a bit more contentious.
Indeed, one of the most polarizing new trends on the stock market relates to the use of traditional valuation metrics—or the lack of use, I should say. For better or worse, investors are quick to disregard old-school methods in favor of heavy optimism about the future.
This manifests itself the most in the technology sector, and it’s the reason that Tesla (TSLA) and Amazon (AMZN) continue to be two of the year’s hottest stocks—despite sporting “F” grades for Value in our Style Scores system.
But at least one traditional valuation metric continues to be a favorite in today’s tech sector: the Price/Sales ratio. The P/S ratio is a measurement of a company’s stock price against its annual revenues, and many investors prefer it as a valuation metric because it disregards management manipulation, accounting estimates, and other variables that go into earnings results.
What’s more, the P/S ratio is a favorite among tech investors because the sector presents unique challenges, like high startup costs and cyclical consumer trends, which can sometimes make earnings-related metrics a less-accurate gauge of company performance.
With all of this said, a stock with an impressive P/S ratio and a strong Zacks Rank might just be the perfect combination in today’s tech world. Check out these five below:
1. Fitbit (FIT)
Wearable tech giant Fitbit currently sports a P/S ratio of 0.78, which bests the “Electronics - Measuring Instruments” industry average of 1.62. Unfortunately, Fitbit’s better-than-average P/S figure has come as a result of slumping share prices, not strong sales growth.
Still, the stock has a Zacks Rank #2 (Buy), and the company has recently undergone executive shakeup and cost structuring initiatives that have been received well. On top of this, its new Ionic device is its first foray into the smartwatch market and should prove to be a legitimate Apple (AAPL) Watch competitor this holiday season.
2. IntriCon Corporation (IIN)
IntriCon designs, develops, engineers and manufactures microminiaturized medical and electronic products. The company is currently maintaining a P/S ratio of 1.03, which is better than the average of 1.45 posted by its “Electronics - Miscellaneous Components” industry peers.
In addition to its strong P/S ratio, IntriCon has a Zacks Rank #1 (Strong Buy). Shares of the company have already surged more than 65% year-to-date, but the stock could continue to rise if continues to attract investors.
3. Ultra Clean Holdings (UCTT)
Ultra Clean is a provider of gas and chemical delivery solutions for the semiconductor manufacturing industry, and with shares up over 167% this year, it has emerged as one of the best performing stocks in this space. This is primarily because of Ultra Clean’s strong growth metrics, but the company’s P/S ratio implies it could still be undervalued.
Indeed, Ultra Clean is currently sporting a P/S ratio of 1.16, which is better than the 2.12 average of its “Electronics - Manufacturing Machinery” industry. In addition, the company currently has a Zacks Rank #1 (Strong Buy) and an overall VGM grade of “A.”
4. Zagg Inc. (ZAGG)
Best known for its invisibleSHIELD brand, Zagg is a designer of protective cases for consumer electronics. Currently, the company has a P/S ratio of 0.87, which edges out its “Electronics - Miscellaneous Components” industry average of 1.45.
Furthermore, Zagg is a Zacks Rank #2 (Buy) and presents an interesting growth story. According to our current consensus estimates, the company is expected to report full-year EPS growth of 184% and revenue growth of 22%. This sales growth also works to show that investors might still be undervaluing the stock.
5. Amtech Systems (ASYS)
Amtech Systems is a provider of reliable silicon wafer handling, processing equipment and related consumables to the semiconductor industry. The company currently has a P/S ratio of 1.10, which is better than the average of 2.26 posted by its “Semiconductor – General” industry peers.
Interestingly, this industry is also in the top 1% of the Zacks Industry Rank, and with a Zacks Rank #1 (Strong Buy), ASYS is sitting at the top of this group. The stock also has a “B” grade for Growth and has soared more than 120% over the past year.
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