Buy These 7 Low Price-to-Sales Stocks for Maximum Returns

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.

Investment in stocks made after an 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.

Price-to-sales ratio 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 ratio 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 38 stocks that qualified the screening:

Bassett Furniture Industries BSET is a home furnishing retailer with operations in the United States and internationally. It engages in designing, manufacturing, sourcing, distribution, and sale of furniture products to a network of company-owned and licensee-owned Bassett Home Furnishings retail stores, as well as independent furniture retailers; and wood and upholstery operations. The stock currently has a Value Score of B and a Zacks Rank #1. It has a 3–5 year EPS growth rate of 16%.

Foot Locker, Inc. FL is a retailer of athletic shoes and apparel. The company operates websites and mobile apps, aligned with the brand names of store banners. In addition, Foot Locker has franchise operations in the Middle East. The company has two operating segments, North America and International. The stock currently has a Zacks Rank #2 and a Value Score of A. It has a 3–5 year EPS growth rate of 2.6%.

Woodlands, TX-based Huntsman Corporation HUN is among the world's largest manufacturers of differentiated and commodity chemical products. The company markets its products to a diverse group of industrial and consumer customers. Its products include MDI, polyols, propylene oxide, amines, surfactants, maleic anhydride, epoxy-based polymer formulations, textile chemicals and dyes. Huntsman’s products are used in a number of applications including aerospace, automotive, construction products, adhesives, personal care and hygiene, durable and nondurable consumer products, digital inks, electronics, medical, packaging, coatings and construction, power generation, refining and textile chemicals. The stock currently has a Zacks Rank #1 and a Value Score of B. It has a 3–5 year EPS growth rate of 8.9%.

Advance Auto Parts, Inc. AAP operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts (excluding tires), accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles, light and heavy-duty trucks. It is a leading automotive parts provider in North America, serving “do-it-yourself” or “DIY”, and “do-it-for-me” or “DIFM” (or Commercial) customers. It has a 3–5 year EPS growth rate of 12.9%. 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.

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 #1 and a Value Score of A. It has a 3-5 year estimated EPS growth rate of 5%.

World Fuel Services Corporation INT is a leading global fuel services company, engaged in the distribution of fuel, and related products and services in the aviation, marine, and land transportation industries. The 3-5 year EPS growth rate for the stock is estimated at 5%. The stock currently has a Value Score of A and a Zacks Rank #2.

Janus Henderson Group plc JHG is a leading global active asset manager, specializing in active investment across all major asset classes. It actively manages a broad range of investment products for institutional and retail investors across five capabilities: equities, fixed income, quantitative equities, multi-asset and alternative asset class strategies. This Zacks Rank #2 company has a Value Score of B. The 3-5 year EPS growth rate for the stock is estimated at 9.3%.

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.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your trial to the Research Wizard today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Korea Electric Power Corporation (KEP) : Free Stock Analysis Report
 
Advance Auto Parts, Inc. (AAP) : Free Stock Analysis Report
 
Foot Locker, Inc. (FL) : Free Stock Analysis Report
 
Huntsman Corporation (HUN) : Free Stock Analysis Report
 
World Fuel Services Corporation (INT) : Free Stock Analysis Report
 
Bassett Furniture Industries, Incorporated (BSET) : Free Stock Analysis Report
 
Janus Henderson Group plc (JHG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research