For Immediate Release
Chicago, IL - May 7, 2019 - Stocks in this week's article are Quanta Services Inc. PWR , Tutor Perini Corporation TPC , Rocky Brands RCKY , J. Alexander's Holdings JAX and Popular Inc. BPOP .
Low Price-to-Sales Stocks with Value-Based Potential
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.
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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 Popular, Inc. (BPOP): Free Stock Analysis Report Quanta Services, Inc. (PWR): Free Stock Analysis Report Tutor Perini Corporation (TPC): Free Stock Analysis Report Rocky Brands, Inc. (RCKY): Free Stock Analysis Report J. Alexander's Holdings, Inc. (JAX): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research