These 7 Price-to-Sales Stocks Can Be Rewarding Investments

Investment in stocks made after 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 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.

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 16 stocks that qualified the screening:

Office Depot, Inc. ODP is one of the leading providers of business services and supplies, products and technology solutions to small, medium and enterprise businesses, through its fully integrated business-to-business distribution platform of 1,307 retail stores, online presence, and dedicated sales professionals and technicians. The company reports through three segments: Business Solutions Division, also referred to as BSD, Retail Division and CompuCom Division. The stock currently has a Value Score of A and a Zacks Rank #1. It has a 3–5 year EPS growth rate of 6.8%.

Korea Electric Power Corporation KEP is an integrated electric utility company that generates, transmits and distributes electricity in 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 EPS growth rate of 5%.

Diamond S Shipping Inc. DSSI is a shipping company involved in seaborne transportation of crude oil, refined petroleum and other production. It operates through two segments, Crude Tankers and Product Tankers. The stock currently has a Value Score of A and a Zacks Rank #2.

Zaandam, the Netherlands-based Koninklijke Ahold Delhaize N.V. ADRNY was founded in 1887 and operates retail food stores primarily in the United States and Europe. The company offers supermarket, superstore, online shopping, online grocery shopping, small supermarket, convenience store, drugstore, wine and liquor store, online shopping for general merchandise, compact hyper and supermarket, and hypermarkets store formats. The company’s 3-5 year EPS growth rate is expected to be 5.1%. The stock has a Value Score of A and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

GAIN Capital Holdings, Inc. GCAP is a provider of trading services and solutions to over-the-counter (OTC) and exchange-traded markets worldwide. It operates in two segments, Retail and Futures. It provides access to a range of financial products, including spot foreign exchange (forex) and precious metals trading, spread bets, and OTC options on forex, as well as contracts for differences on currencies, commodities, indices, individual equities, cryptocurrencies, bonds, options, and interest rate products. The stock currently has a Zacks Rank #2 and Value Score of B.

AZZ Inc. AZZ provides galvanizing and metal coating solutions, welding solutions, specialty electrical equipment, and highly engineered services to power generation, transmission, distribution, refining, and industrial markets. The company operates through two segments, Energy and Metal Coatings. The stock currently has a Zacks Rank #2 and Value Score of A.

Houston, TX-based Oasis Midstream Partners LP OMP provides crude oil, natural gas and water-related midstream services in North America. It offers natural gas gathering, compression, processing and gas lift services; and crude oil gathering, stabilization, blending and storage services. Further, it engages in produced and flowback water gathering and disposal services; freshwater supply and distribution services; and crude oil transportation services from the Wild Basin operating area to Johnson's Corner. The stock currently has a Zacks Rank #1 and 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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Korea Electric Power Corporation (KEP) : Free Stock Analysis Report
 
AZZ Inc. (AZZ) : Free Stock Analysis Report
 
Office Depot, Inc. (ODP) : Free Stock Analysis Report
 
GAIN Capital Holdings, Inc. (GCAP) : Free Stock Analysis Report
 
Ahold NV (ADRNY) : Free Stock Analysis Report
 
Oasis Midstream Partners LP (OMP) : Free Stock Analysis Report
 
Diamond S Shipping Inc. (DSSI) : Free Stock Analysis Report
 
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