IInvesting in equities after a valuation metrics analysis is generally considered to be one of best practice. When considering valuation metrics, the price / earnings ratio has always been the obvious choice. Indeed, calculations based on income are easy and useful. However, the sell price has become a practical tool for determining the value of stocks that suffer losses or are in an early cycle of development, generating little or no profit.
As a loss-making company with a negative price-to-earnings ratio falls out of favor with investors, its price-to-sales ratio could indicate the company’s hidden strength. This underestimated ratio also makes it possible to identify a recovery situation or to ensure that the growth of a company is not overestimated.
The price-to-sales ratio of a stock reflects the amount that investors pay for every dollar of income generated by a business.
If the price / sale ratio is 1, investors pay $ 1 for every $ 1 of income generated by the business. So, a stock with a sell ratio of less than 1 is a good deal because investors have to pay less than a dollar for the dollar.
Thus, a stock with a lower price / sell ratio is a more appropriate investment than a stock with a high price / sell ratio.
Schneider National SNDR, Calères Inc. CAL, AAR Corp. AIR, Jewelers Signet rings GIS and Avnet Inc. AVTs are stocks with a low price / sell ratio and the potential to offer higher returns.
The price-to-sales ratio is often preferred over the price-to-earnings ratio because companies can manipulate their profits using a variety of accounting measures. However, sales are more difficult to handle and are relatively reliable.
However, it should be borne in mind that a business with high debt and a low price-to-sales ratio is not an ideal choice. The high level of debt will have to be repaid at some point, which will lead to new issuance of shares, an increase in market capitalization and, ultimately, a higher price-to-sell ratio.
In any case, the price / sales ratio used in isolation cannot do the trick. Other ratios such as price / earnings, price / pound, and debt / equity should also be analyzed before making an investment decision.
Selling price lower than the median selling price for its industry: The lower the price / sale ratio, the better.
The price / earnings ratio using an F (1) estimate lower than the median price / earnings ratio for its industry: The lower the better.
Reservation price (ordinary shares) lower than the median reservation price for its industry: This is another parameter to ensure the value of a security.
Debt to equity (most recent) lower than the median Debt to equity for its industry: A business with less debt should have a stable price-to-sales ratio.
Current price greater than or equal to $ 5: The stocks should trade at a minimum of $ 5 or more.
Rank of Zacks less than or equal to # 2: Zacks Rank # 1 (Strong Buy) or 2 (Buy) stocks are known to outperform regardless of the market environment.
Value Note less than or equal to B: Our research shows that stocks with a value score of A or B, when combined with a Zacks # 1 or 2 ranking, offer the best opportunities in the value investing space.
Here are the five stocks of the 35 that qualified for screening:
Schneider National is a leading transportation and logistics services company. It offers a portfolio of first-class truck, intermodal and logistics solutions. Schneider operates one of the largest rental truck fleets in North America.
Schneider’s offerings include dry van, bulk transport, intermodal management and supply chain. The stock currently has an A value score and a Zacks rank 2. The SNDR shows a 3 to 5 year BPA growth rate of 17.9%.
Calères is a leading shoe retailer and wholesaler in the United States, China, Canada, China, and Guam. It operates through the Famous Footwear and Brand Portfolio segments.
Caleres offers licensed, branded and private label athletic, casual and dress footwear for women, men and children. CAL currently has a Zacks # 1 ranking and a value score of B.
Wood Dale, based on IL AAR Corp. provides various products and services to the aviation and defense industries around the world. Its main customers are The Boeing Company and Airbus. The company is now present in two business segments – Aviation Services and Expeditionary Services – following the divestiture of Telair Cargo Group and the planned sale of Precision Systems Manufacturing.
AAR Corp. is the world’s largest supplier of spare parts. AIR stock currently has an A value score and a Zacks rank 2. You can see The full list of today’s Zacks # 1 Rank stocks here.
Jewelers Signet rings is a retailer of diamond jewelry, watches and other products. The company operates in the United States, Canada, United Kingdom, Republic of Ireland and the Channel Islands. Signet is often regarded as the leading retailer of diamond jewelry.
Signet’s Inspiring Brilliance strategy focuses on expanding large banners, increasing service revenues, expanding accessible luxury and value segments, and accelerating digital commerce. SIG currently has an A value score and a # 1 Zacks rank. It shows a long-term earnings growth rate of 8%.
Phoenix, AZ Avnet is one of the world’s largest distributors of electronic components and computer products. The company’s customers include original equipment manufacturers, electronics manufacturing service providers, original design manufacturers and value-added resellers.
Avnet maintains a large inventory, comprising electronic products from more than 300 component and system manufacturers, which it distributes to customers around the world. It distributes products for companies like International Business Machines Corp. and Hewlett-Packard Co. AVT currently has an A value score and a # 2 Zacks rank. It has a long-term profit growth rate of 27.7%
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Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.
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