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.
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.
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 17 stocks that qualified the screening:
The Manitowoc Company MTW is a leading provider of engineered lifting solutions, including lattice-boom cranes, tower cranes, mobile telescopic cranes and boom trucks. The company has over a 116- year tradition of providing high-quality, customer-focused products and support services. The stock currently has a Zacks Rank #2 and a Value Score of B. The 3-5 year EPS growth rate for the stock is estimated at 10%.
MGM Growth Properties LLC MGP engages in owning, acquiring, and leasing casino resort properties in the United States. The resorts provide casino gaming, hotel, convention, dining, entertainment, retail and other amenities. The stock currently has a Zacks Rank #2 and a Value Score of B. It also has an estimated 3–5 year EPS growth rate of 3.5%.
AZZ Inc. AZZ is a provider of galvanizing and metal coating services, welding solutions, specialty electrical equipment, and highly engineered services to the power generation, transmission, distribution, refining, and industrial markets. It offers custom switchgear, electrical enclosures, medium and high voltage bus ducts, explosion proof and hazardous duty lighting, nuclear safety-related equipment, and tubular products. The stock currently has a Value Score of B and a Zacks Rank #1.
Pampa Energia S.A. PAM is an integrated electricity company that engages in the generation, transmission, and distribution of electricity in Argentina. It operates through Electricity Generation, Electricity Distribution, Oil and Gas, Refining and Distribution, Petrochemicals, and Holding and Other Business segments. The company generates electricity through combined cycle gas-fired generating units, thermal generation plants, open-cycle gas turbines, and hydroelectric power generation systems, as well as through a wind farm. The 3-5 year EPS growth rate for the stock is estimated at 20.6%. 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.
World Fuel Services Corporation INT is a leading global fuel services company, engaged in the distribution of fuel, and related products and services in the aviation, marine, and land transportation industries. The stock currently has a Value Score of B and a Zacks Rank #2. The 3-5 year EPS growth rate for the stock is estimated at 5%.
TrueBlue, Inc. TBI is a provider of specialized workforce solutions that help clients achieve business growth and improve productivity. It offers contingent staffing, recruitment process outsourcing, and contingent staffing management services in the United States, Canada and Puerto Rico. The stock currently has a Zacks Rank #1 and a Value Score of A.
Pasadena, CA-based Green Dot Corporation GDOT is a pro-consumer bank holding company and personal banking provider. The company offers products and services directly to customers through a large-scale omni-channel national distribution platform. It also allows third-party partners to access its banking and technology assets for offering their own financial services directly to consumers via private distribution platforms. The stock currently has a Value Score of A and 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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Pampa Energia S.A. (PAM) : Free Stock Analysis Report
AZZ Inc. (AZZ) : Free Stock Analysis Report
The Manitowoc Company, Inc. (MTW) : Free Stock Analysis Report
World Fuel Services Corporation (INT) : Free Stock Analysis Report
MGM Growth Properties LLC (MGP) : Free Stock Analysis Report
TrueBlue, Inc. (TBI) : Free Stock Analysis Report
Green Dot Corporation (GDOT) : Free Stock Analysis Report
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