Zacks.com Featured Highlights Include: Universal Forest, Rocky Brands, Triple-S, Rush, Sinopec, Summit And Principal Financial
Zacks Investment Research | Aug 07, 2019 11:48PM ET
For Immediate Release
Chicago, IL – August 8, 2019 - Stocks in this week’s article are Universal Forest Products (NASDAQ:UFPI) , Rocky Brands (NASDAQ:RCKY) , Triple-S Management (NYSE:GTS) , Rush Enterprises (NASDAQ:RUSHA) , Sinopec Shanghai Petrochemical Company (NYSE:SHI) , Summit Hotel Properties (NYSE:INN) and Principal Financial Group, Inc. (NASDAQ:PFG) .
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.
For the rest of this Screen of the Week article please visit Zacks.com at: Zacks Investment Research
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