One should also analyze other ratios like Price/Earnings, Price/Book, and Debt/Equity before arriving at any investment decision.įor the rest of this Screen of the Week article please visit at: ĭisclosure: 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. In any case, the price-to-sales ratio used in isolation cannot do the trick. 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. However, one should keep in mind that a company with high debt and a low price-to-sales ratio is not an ideal choice. However, sales are harder to manipulate and are relatively reliable. The price-to-sales ratio is often preferred over price-to-earnings as companies can manipulate their earnings using various accounting measures. MarineMax, Caleres, The Mosaic Co, TravelCenters of America and Standard Motor Products are some stocks with a low price-to-sales ratio and the potential to offer higher returns. 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. 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. If the price-to-sales ratio is 1, investors are paying $1 for every $1 of revenues generated by the company. This underrated ratio is also used to identify a recovery situation or ensure that a company's growth is not overvalued.Ī stock’s price-to-sales ratio reflects how much investors pay for each dollar of revenue generated by a company. 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. However, price-to-sales has emerged as a convenient tool to determine the value of stocks incurring losses or are in an early cycle of development, generating meager or no profits. This is because calculations based on earnings are easy and come in handy.
When considering valuation metrics, the price-to-earnings ratio has always been the obvious choice. Investment in stocks made after an analysis of valuation metrics is usually considered one of the best practices. 5 Stocks with Low Price-to-Sales Ratios for Higher Returns
CAL, The Mosaic Company MOS, TravelCenters of America Inc. Chicago, IL – Decem– Stocks in this week’s article are MarineMax, Inc.