Investing in shares made after the analysis of valuation metrics is generally considered one of the best practices. When considering valuation metrics, the price-to-earnings ratio is always the obvious choice. This is because calculations based on earnings come in handy and appropriate. However, selling by price has emerged as a favorable tool for determining the value of shares that cause a loss or make little or no profit in the initial cycle of development.
What is the price-to-sales ratio?
A loss-making company with a negative price-to-earnings ratio falls in favor of investors, whose price-sales indicate the hidden strength of the business. This underrated ratio is used to identify recovery conditions or to ensure that the company’s growth is not overestimated.
The price-to-sales ratio of a stock reflects how much investors pay per dollar of revenue generated by the company.
If the price-to-sales ratio is 1, investors are paying $ 1 for every $ 1 of revenue the company generates. Therefore, a stock with less than 1 is a good bargain as investors have to pay less than a dollar for the value of the dollar.
Thus, a stock with a lower price-to-sales ratio is a more appropriate investment than a stock with a high price-to-sales ratio.
The price-to-sales ratio is preferred over price-to-earnings as companies can manipulate their earnings using a variety of accounting measures. However, it is difficult and relatively reliable to manipulate sales.
However, it should be kept in mind that a company with high debt and low price-to-sales ratio is not the ideal option. Higher levels of debt have to be paid off at some point, leading to further share issuance, an increase in market cap, and ultimately a higher price-to-sales ratio.
In any case, the price-to-sales ratio used separately does not do the trick. Other ratios such as price / earnings, price / book, and debt / equity must also be analyzed before any investment decision is made.
Aaron Company Inc. (AAN – Free report), Signet Jewelers (SIG – Free report), Avnet (AVT – Free report), Visay Intertechnology (VSH – Free report) and Travel Centers of America Inc. (TA – Free Report) Some stocks that have a low price-to-sales ratio and are capable of delivering high returns.
Average selling price for its business is below the average price: The lower the price-to-sales ratio, the better.
The earnings price using F (1) is below the average price of earnings for its business: The less, the better.
Book price (general equity) is below the average price to book for its business: This is another parameter to ensure the value of the stock.
Debt to Equity (Latest) Less than Medium Debt to Equity to its Business: A company with low debt should have a fixed price-to-sales ratio.
Current price greater than or equal to $ 5: Stocks must be trading at least $ 5 or more.
Zacks rating is less than or equal to # 2: Zacks Rank # 1 (Strong Buy) or 2 (Buy) stocks dominate the market environment regardless.
Value score less than or equal to B: Our research shows that stocks with a value score of A or B, combined with the Zacks rank # 1 or 2, offer better opportunities in the value investment space.
Here are five of the 37 stocks eligible for the screening:
Aaron’s The leading omnichannel providers of lease-to-own (“LTO”) and purchasing solutions are mainly low-service and credit-challenged customers. Through its various business divisions, the company primarily deals in sales and leasing, excluding specialty retailers of furniture, home appliances, electronics, computers and many other products and accessories.
The Atlanta, GA-based company’s business also includes Woodven Furniture Industries. Woodwen is the manufacturer and supplier of most mattresses and owns most of the upholstered furniture leased and sold in Aaron’s company-operated and franchised stores. The stock currently has A Value Score of A and has Zacks Rank # 1.
Signet Jewelers A retailer of diamond jewelry, watches and other products. The company operates in the United States, Canada, the UK, the Republic of Ireland and the Channel Islands. Signet is often considered a major retailer of diamond jewelry.
Signet’s inspirational Brilliance strategy focuses on expanding large banners, increasing service revenue, expanding accessible luxury and value segments, and accelerating digital commerce. SIG currently has a value score of A and it has a Zacks Rank # 1. It has a long-term earnings growth rate of 8%.
Phoenix, AZ-based Avnet One of the world’s largest distributors of electronic components and computer products. The company’s customer base includes original equipment manufacturers, suppliers of electronic manufacturing services, original design manufacturers and value-added resellers.
Avnet maintains an extensive inventory, including electronic products of more than 300 units and system manufacturers, distributing it to customers worldwide. It distributes products to companies such as the International Business Machines Corporation and Hewlett-Packard Co. AVT. It has a long-term earnings growth rate of 37.2%. You can see Here is the complete list of shares for today’s Zacks # 1 range.
Visay A global manufacturer and supplier of semiconductors and passive components. Its semiconductor products include metal oxide semiconductor field-effect transistors, diodes and optoelectronic units. They are commonly used to perform functions such as switching, amplification, troubleshooting, routing or transmitting electrical signals, power conversion and power management.
Vishay is benefiting from strong automotive and industrial end-market demand. Automotive remains a major driver due to the increasing proliferation of electronic content in vehicles and the increasing adoption of driver-assist systems around the world. Furthermore, the solid demand for IoT sensing, infrastructure programs and alternative energy is driving VSH’s performance in the industrial market. The stock has a current Value Score of A and Zacks Tier # 2. It has a long-term earnings growth rate of 22.7%.
American Travel Centers Operates travel destinations and unique restaurants in the United States and Canada. Its travel centers offer a range of products and services, including diesel fuel and gasoline, diesel exhaust fluid, truck repair and maintenance and roadside services.
The Travel Center of America also operates full-service and quick-service restaurants and various customer facilities. It operates restaurants under a franchise agreement. TA currently has a value score of A and Zacks Rank # 1.
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