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7 Low Price-to-Sales Picks to Create Value-Based Returns

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Zacks Equity Research
·7 min read
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Investment in stocks made after an 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 the 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 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.

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 high debt and 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, 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 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 45 stocks that qualified the screening:

Tilly’s, Inc. TLYS is a casual apparel, footwear, and accessories retailer in the United States. It offers apparel, accessories and others merchandise for young men and women, and boys and girls. It also provides third-party merchandise assortment across various product categories. The stock currently has a Zacks Rank #2 and a Value Score of A. It has a 3–5-year EPS growth rate of 10%.

Korea Electric Power Corporation KEP is an integrated electric utility company that generates, transmits and distributes electricity in South Korea and internationally. Based in Naju, South Korea, the company generates power from nuclear, coal, oil, liquefied natural gas, internal combustion, combined-cycle, integrated gasification combined cycle, hydro, wind, solar, fuel cell, biogas, and other sources. The stock currently has a Zacks Rank #2 and a Value Score of A. It has a 3-5-year estimated EPS growth rate of 5%.

DCP Midstream, LP DCP is a leading energy infrastructure firm. This Fortune 500 firm has a strong and sustaining business strategy, with a diversified portfolio of gathering, logistics, marketing, and processing assets across nine states. Importantly, DCP Midstream — a master limited partnership (MLP) — was created in 2005 and has a total asset base of $17.1 billion. The stock currently has a Value Score of A and a Zacks Rank #2.

Vishay Intertechnology VSH is a global manufacturer and supplier of semiconductors and passive components. Semiconductor products include metal oxide semiconductor field-effect transistors (MOSFETs), diodes and optoelectronic components. These are typically used to perform functions such as switching, amplifying, rectifying, routing or transmitting electrical signals, power conversion, and power management. It has a 3–5-year EPS growth rate of 20.3%. The stock currently has a Value Score of A and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Luxembourg-based ArcelorMittal MT is the world’s leading steel and mining company. With a presence in more than 60 countries, it operates a balanced portfolio of cost competitive steel plants across both the developed and developing world. It is the leader in all the main sectors – automotive, household appliances, packaging and construction. Its steel-making operations have significant geographic diversification with roughly 38% of its crude steel produced in the Americas, 47% in Europe and around 15% in other countries. The stock currently has a Zacks Rank #1 and a Value Score of A. It has a 3–5 year EPS growth rate of 15.2%.

China Petroleum & Chemical Corporation SNP or Sinopec, with its head office in Beijing, China, is one of the largest petroleum and petrochemical companies in Asia. The company is the second-largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China. The company is also the largest producer and distributor of petrochemicals in the nation. The stock currently has a Value Score of A and a Zacks Rank #2.

Piper Sandler Companies PIPR operates as an investment bank and institutional securities firm. It primarily serves corporations, private equity groups, public entities, non-profit entities, and institutional investors in the United States and internationally. Its products and services include financial advisory services; equity and debt capital markets products; public finance services; equity research and institutional brokerage; fixed income services; and private equity strategies. The stock currently has a Value Score of B and a Zacks Rank #1.

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.


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Korea Electric Power Corporation (KEP) : Free Stock Analysis Report
 
ArcelorMittal (MT) : Free Stock Analysis Report
 
China Petroleum & Chemical Corporation (SNP) : Free Stock Analysis Report
 
Vishay Intertechnology, Inc. (VSH) : Free Stock Analysis Report
 
Tillys, Inc. (TLYS) : Free Stock Analysis Report
 
DCP Midstream Partners, LP (DCP) : Free Stock Analysis Report
 
Piper Sandler Companies (PIPR) : Free Stock Analysis Report
 
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