Buy These 5 Low Price-to-Sales Stocks for a Sparkling Portfolio
Investment in stocks after the analysis of the valuation metrics is considered one of the best practices. When considering 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 cycle of development, generating meager or no profit.
What’s 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 that 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. Therefore, 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.
Barnes Group Inc. B, American International Group AIG, ArcelorMittal MT, KB Home KBH and Pampa Energia S.A. PAM are some companies with a low price-to-sales ratio and the potential to offer higher returns.
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 five of the 19 stocks that qualified the screening:
Barnes is a global diversified manufacturer and provider of highly engineered products, innovative solutions, and differentiated industrial technologies. The company’s product and solution offerings include plastic injection molding technologies, robotic grippers, automation components, fine-blanked solutions, high-performance precision components and engineering solutions. Barnes is poised to benefit from its focus on innovation and solid operational execution.
Strength in the Aerospace unit due to healthy aftermarket businesses, including maintenance, repair, and overhaul, and spare parts (RSP programs) sales, is benefitting the company. Robust Original Equipment Manufacturing order bodes well for the segment. Its measures to reward shareholders through dividends are encouraging. B has a Value Score of B and currently carries a Zacks Rank #2. The company has an expected long-term earnings growth rate of 10%.
American International is a leading global insurance organization. Building on its long history, it provides a wide range of property casualty insurance, life insurance, retirement solutions and other financial services to customers in more than 80 countries and jurisdictions. Strategic business de-risking and acquisitions, cost-control efforts, and accelerated capital deployment continue to drive AIG’s growth.
Over the years, AIG has been streamlining its operations and restructuring businesses by axing businesses, thereby enhancing capital allocation and operating leverage. AIG's cost-cutting efforts under AIG 200 transformative program are driving its operational efficiency and aiding the margins. Revenues have been growing on the back of its well-performing commercial lines unit. AIG has a Value Score of A and currently flaunts a Zacks Rank #1. The company has an expected long-term earnings growth rate of 10%.
Luxembourg-based ArcelorMittal 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 the developed and developing world. The company is expanding its steel-making capacity and has been focused on shifting to high-added-value products. As part of this move, ArcelorMittal is expanding its automotive steel line of products. The company is expanding its global portfolio of automotive steels by launching a new generation of AHSS. The launch of these steels is in sync with the company’s Action 2020 program.
ArcelorMittal has been focused on executing its cost-reduction actions in the wake of the coronavirus pandemic. The company is executing a new $1-billion fixed-cost-reduction program, which includes actions to improve productivity and maintenance efficiency, and rationalize support functions. The MT stock currently has a Value Score of A and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Los Angeles, CA, KB Home is a well-known homebuilder in the United States and one of the largest in the state. The company’s Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, townhomes and condominiums.
KBH’s growth is driven by the Returns-Focused Growth Plan, which includes the execution of its core business strategy, improving asset efficiency and monetizing significant deferred tax assets. Its long-term growth is attributable to the increase in backlog and its ability to match housing starts to net orders. Also, KB Home’s robust land acquisition strategies assist it to reduce debt, and boost gross margin and returns. The KBH stock currently has a Value Score of A and a Zacks Rank #2. The company has an expected long-term earnings growth rate of 7.1%.
Pampa Energia is an independent energy integrated company in Argentina. Through its subsidiaries, the company is engaged in the generation, transmission and distribution of electricity in Argentina. PAM operates through Electricity Generation, Oil and Gas, Petrochemicals, and Holding and Other Business segments. It generates electricity through thermal generation plants, thermal gas-fired generation plants and hydroelectric power generation systems, as well as a wind farm.
The company also explores for and produces oil and gas, and operates a high-voltage electricity transmission network. It produces petrochemicals, such as styrene, styrene butadiene rubber and polystyrene. In addition, it engages in gas transportation and advisory services activities. PAM currently flaunts a Zacks Rank #1 and has a Value Score of A.
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ArcelorMittal (MT) : Free Stock Analysis Report
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