Yahoo Finance 5 Low Price-to-Sales Stocks That Can Uplift Your 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, PagSeguro Digital PAGS and Pampa Energia S.A. PAM are some companies with a low price-to-sales ratio and the potential to offer higher returns.
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 five of the 18 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. Barnes 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, 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 $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.
São Paulo, Brazil-based PagSeguro Digital provides financial technology solutions and services for micro-merchants, and small and medium-sized businesses primarily in Brazil and internationally. The company offers multiple digital payment solutions, in-person payments via point-of-sales devices and prepaid card services.
PagSeguro Digital has been diversifying its payment business. Year 2022 marked the consolidation of its HUBs initiative to extend its best-in-class services to small and mid-sized clients. As a result, PagBank consolidated as the second-largest digital bank in Brazil, with 28 million clients. Its disciplined capital allocation has significantly aided operating and investing cash flow generation, positioning it to further explore the opportunities in Payments and Financial services in the Brazilian territory in the coming years. The PAGS stock currently has a Value Score of A and a Zacks Rank #2. It has an expected long-term earnings growth rate of 9.8%.
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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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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ArcelorMittal (MT) : Free Stock Analysis Report
American International Group, Inc. (AIG) : Free Stock Analysis Report
Pampa Energia S.A. (PAM) : Free Stock Analysis Report
Barnes Group, Inc. (B) : Free Stock Analysis Report
PagSeguro Digital Ltd. (PAGS) : Free Stock Analysis Report
