7 Value-Based Low Price-to-Sales Stocks With Room To Run

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 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 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 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 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 14 stocks that qualified the screening:

Universal Forest Products (NASDAQ:UFPI) engineers, manufactures, treats, distributes and installs lumber, composite wood, plastic and other building products. The stock currently has a Zacks Rank #2 and a Value Score of A. The 3-5 year EPS growth rate for the stock is estimated at 5%.

Rocky Brands (NASDAQ:RCKY) is a manufacturer and seller of footwear and apparel in the United States, Canada and internationally. It sells products under the Rocky, Georgia Boot, Durango, Lehigh, Creative Recreation and Michelin (PA:MICP) brands. The stock currently has a Value Score of A and a Zacks Rank #2.

Triple-S Management (NYSE:GTS) has a portfolio of managed care and related products in the commercial, Medicare Advantage, and Medicaid markets. The company markets and distributes its products through a network of internal sales force, direct mail, independent brokers and agents, telemarketing staff, traditional media, and digital media, as well as e-commerce. The stock has a Zacks Rank #2 and a Value Score of A. It has an estimated 3–5 year EPS growth rate of 10%.

Rush Enterprises (NASDAQ:RUSHA) is an integrated retailer of commercial vehicles and related services in the United States. The company operates a network of commercial vehicle dealerships under the Rush Truck Centers name. The company has an estimated 3–5 year EPS growth rate of 15%. The stock currently has a Value Score of B and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sinopec Shanghai Petrochemical Company (NYSE:SHI) is a manufacturer and seller of petrochemical products in the People's Republic of China. The company operates through five segments; Synthetic Fibres, Resins and Plastics, Intermediate Petrochemical Products, Petroleum Products, and Trading of Petrochemical Products. The stock currently has a Value Score of A and a Zacks Rank #1.

Summit Hotel Properties (NYSE:INN) is a real estate investment trust focused on owning premium-branded hotels. This publicly-traded company has efficient operating models primarily in the Upscale segment of the lodging industry. The stock currently has a Zacks Rank #2 and a Value Score of A.

Des Moines, IA-based Principal Financial Group, Inc. (NASDAQ:PFG) is an investment management company providing retirement, asset management, and insurance products and services to businesses, individuals, and institutional clients worldwide. The stock currently has a Value Score of A and a Zacks Rank #2. It has a 3–5 year EPS growth rate of 6.9%.

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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.