Yahoo Finance These 5 Price-to-Sales Stocks Can Be Rewarding Investments
Investment in stocks after the analysis of the valuation metrics is considered one of the best practices. When considering valuation metrics, the price-to-earnings ratio has always been the obvious choice. This is because calculations based on earnings are easy and come in handy. However, the price-to-sales ratio is convenient for determining the value of stocks that are incurring losses or in an early cycle of development, generating meager or no profit.
What’s Price-to-Sales Ratio?
While a loss-making company with a negative price-to-earnings ratio falls out of investors’ 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.
A stock’s price-to-sales ratio reflects how much investors pay for each dollar of revenue generated by a company.
If the price-to-sales ratio is 1, investors are paying $1 for every $1 of revenues generated by the company. So, 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.
The 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 a high debt and a 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, a 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.
Sanofi SNY, SK Telecom Co. SKM, PBF Energy PBF, Arrow Electronics ARW and Novartis NVS are some companies that have a low price-to-sales ratio and the potential to offer higher returns.
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 five of the 21 stocks that qualified the screening:
Sanofi manufactures and markets prescription drugs in Europe, the United States and other countries. It focuses on major therapeutic areas such as immunology, neurology, oncology, rare disease, rare blood disorders and diabetes. The company has been investing in product launches to optimize success. Sanofi is the pharma stock with the least exposure to generic competition among large drugmakers. It has also significantly stepped up its acquisition and alliance activity over the past few years.
Sanofi’s diversified product portfolio, with a presence in several therapeutic areas, including cardiovascular diseases, diabetes, oncology and immunology, has been aiding performance. Sanofi has also been progressing with product launches. SNY currently has a Zacks Rank #2 and a Value Score of A. it has an expected long-term earnings growth rate of 7.4%.
SK Telecom is a wireless telecommunication service based in South Korea. The company has been leading growth of the mobile industry since 1984. SKM is focused on taking customer experience to new heights by extending beyond connectivity. The company’s Fixed and Mobile Telecommunications business maintains solid market leadership, while new growth businesses such as Media, Enterprise and AIVERSE have been achieving tangible results.
By placing artificial intelligence (“AI”) at the core of its business, SK Telecom is rapidly transforming into an AI company. It is focused on driving innovations in areas of telecommunications, media, AI, metaverse, cloud and connected intelligence to deliver greater value for individuals and enterprises. SKM has a Value Score of A and currently sports a Zacks Rank #2.
PBF Energy is a leading refiner of crude. Through five oil refineries and associated infrastructure in the United States, the company provides end products that comprise heating oil, transportation fuels, lubricants and several related products. The refineries can collectively process 900,000 barrels of crude every day. It operates through six refineries, spreading across East Coast, Gulf Coast, West Coast, and Mid-continent areas, representing a diversified asset base.
PBF Energy has one of the most complex refining systems in the United States, with an overall Nelson Complexity Index reading of 13.2. This reflects that its oil refineries, having the capacity to generate lighter and better grades of refined products, are more sophisticated than most of the other refiners. The PBF 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.
New York-based Arrow Electronics is one of the world’s largest distributors of electronic components and enterprise computing products. Arrow provides one of the broadest product ranges in the electronic components and enterprise computing solutions distribution industries. Along with these, the company provides a wide range of value-added services to help customers reduce their marketing time, lower the total cost of ownership, introduce innovative products through demand creation opportunities and enhance their overall competitiveness.
Arrow Electronics is benefiting from robust demand for its software, cloud and security solutions, and efficient supply-chain management. The strong performance of Global Components in America was a major boost to the top line. Strong momentum in infrastructure software, next-generation hardware and hybrid cloud architectures is encouraging. Continued focus on boosting Internet of things capabilities is helping it expand in newer markets and gain customers. The ARW stock currently has a Value Score of A and a Zacks Rank #2.
Switzerland-based Novartis has one of the strongest and broadest portfolios of oncology drugs and generics, which has enabled it to maintain its dominant position as a top pharma company over the years. It continues to build depth in five core therapeutic areas (Cardiovascular, Immunology, Neuroscience, Solid Tumors and Hematology), strength in technology platforms (Targeted Protein Degradation, Cell Therapy, Gene Therapy, Radioligand Therapy and xRNA) and has a balanced geographic footprint.
Novartis has a strong and diverse portfolio. Novartis’ efforts to strengthen its wide and deep oncology portfolio by developing breakthrough treatments had made it even more formidable in this space. Cosentyx, Entresto, Kesimpta, Zolgensma, Kisqali and Leqvio should fuel growth through 2030 and beyond. The company currently has a Value Score of B and a Zacks Rank #2. It has a long-term earnings growth rate of 7.9%.
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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.
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Sanofi (SNY) : Free Stock Analysis Report
Novartis AG (NVS) : Free Stock Analysis Report
SK Telecom Co., Ltd. (SKM) : Free Stock Analysis Report
Arrow Electronics, Inc. (ARW) : Free Stock Analysis Report
PBF Energy Inc. (PBF) : Free Stock Analysis Report
