7 Valuable Low Price-to-Sales Stocks In The Spotlight

Though Price-to-Earnings is the first thing to cross one’s mind while using valuation metrics, 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.

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 more suitable for 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.

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.

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: They 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 Style Score less than or equal to B: Our research shows that stocks with a Value Score of A or B when combined a Zacks Rank #1 or #2 offer the best opportunities in the value investing space.

Here are seven of the 15 stocks that qualified the screening:

Magna International Inc. (NYSE:MGA) is a leading manufacturer and supplier of automotive components. Based in Aurora, Canada, the company is a designer and manufacturer of automotive systems, assemblies, modules and components, apart from engineering and assembling complete vehicles, primarily for sale to original equipment manufacturers (OEMs) of cars and light trucks. This Zacks Rank #2 company has a 3–5 year EPS growth rate of 9.5% and a Value Score of A.

United Natural Foods, Inc. (NASDAQ:UNFI) is the leading distributor of natural, organic and specialty food and non-food products in the United States and Canada. The company carries more than 1,00,000 high-quality natural, organic and specialty products, consisting of national, regional and private label brands in six product categories. The stock currently has a Zacks Rank #2 and a Value Score of A. Also, the 3–5 year EPS growth rate for the stock is estimated at 5%.

The Greenbrier Companies, Inc. (NYSE:GBX) is a manufacturer and seller of railroad freight car equipment in North America and Europe. This Zacks Rank #2 company’s 3–5 year EPS growth rate is pegged at 9.5%. The stock has a Value Score of A. The 3–5 year EPS growth rate for the stock is estimated at 9.5%.

Avnet, Inc. (NYSE:AVT) is one of the world’s largest distributors of electronic components and computer products. It has a 3–5 year EPS growth rate of 8.6%. 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.

Xcerra Corporation (NASDAQ:XCRA) is a provider of test and handling capital equipment, interface products, and test fixtures and related services to the semiconductor and electronics manufacturing industries worldwide. This Zacks Rank #1 company has a 3–5 year EPS growth rate of 16%. The stock has a Value Score of B.

Zaandam, the Netherlands-based Koninklijke Ahold Delhaize N.V. (OTC: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. This Zacks Rank #2 company’s 3–5 year EPS growth rate is 11.6%. The stock has a Value Score of A.

MGM Growth Properties LLC (NYSE:MGP) engages in owning, acquiring, and leasing casino resort properties in the Unied States. These resorts provide casino gaming, hotel, convention, dining, entertainment, retail, and other resort amenities. The stock currently has a Zacks Rank #2 and a Value Score of A. It also has an estimated 3–5 year EPS growth rate of 17.1%.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

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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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Greenbrier Companies, Inc. (The) (GBX): Free Stock Analysis Report

Magna International, Inc. (MGA): Free Stock Analysis Report

Avnet, Inc. (AVT): Free Stock Analysis Report

United Natural Foods, Inc. (UNFI): Free Stock Analysis Report

Xcerra Corporation (XCRA): Free Stock Analysis Report

MGM Growth Properties LLC (MGP): Free Stock Analysis Report

Ahold NV (ADRNY): Free Stock Analysis Report

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