For Immediate Release
Chicago, IL – February 7, 2018 - Stocks in this week’s article Citizens Financial Group Inc. CFG, Hitachi Ltd. HTHIY, Volkswagen AG VLKAY, Kulicke and Soffa Industries Inc. KLIC and The Greenbrier Companies, Inc. GBX.
Promising Low Price-to-Sales for Good Results
When considering valuation metrics, Price-to-Earnings ratio has always been the obvious choice as 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.
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 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 versus a stock with a high Price-to-Sales ratio.
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.
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.
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 and a rise in market cap and ultimately a higher Price-to-Sales ratio.
In any case, the Price-to-Sales ratio used in isolation can’t do the trick. One should also analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.
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Greenbrier Companies, Inc. (The) (GBX) : Free Stock Analysis Report
Kulicke and Soffa Industries, Inc. (KLIC) : Free Stock Analysis Report
Volkswagen AG (VLKAY) : Free Stock Analysis Report
Hitachi Ltd. (HTHIY) : Free Stock Analysis Report
Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report
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