For Immediate Release
Chicago, IL – August 18, 2016 - Stocks in this week’s article include: Cal-Maine Foods Inc. (CALM), Standard Motor Products Inc. (SMP), Korea Electric Power Corp. (KEP), Comfort Systems USA Inc. (FIX) and Arkema S.A. ( ARKAY).
Screen of the Week of Zacks Investment Research:
5 Value Stocks with Low Price-to-Sales Ratios
The use of ratios to determine value stocks is not new in the investment world. Among a host of valuation metrics that are at disposal, Price-to-Sales helps to determine the value of stocks that are suffering losses or are in the early cycle of development, generating meager or no profits.
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 in its business. This underrated ratio is also used to identify recovery situations or ensure that a company's growth is not overvalued.
Price-to-Sales is often preferred to Price-to-Earnings, as companies and managements can fiddle with their earnings using various accounting measures. However, sales are harder to manipulate and are relatively reliable.
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 Price-to-Sales below 1 is a good bargain, as investors need to pay less than a dollar for a dollar’s worth.
Also, a stock with a low Price-to-Sales ratio is a more suitable investment choice than one with a high 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. The high debt level will have to be paid off at some point, leading to further share issuance and a rise in market cap and ultimately a higher Price-to-Sales ratio.
In any case, the Price-to-Sales ratio used in isolation can’t do the trick. One should also analyze other ratios like Price/Earnings, Price/Book, 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: They must all 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 Style Score equal to A: Our research shows that stocks with a Value Style Score of ‘A’ or ‘B’ when combined a Zacks Rank #1 or #2 offer the best opportunities in the value investing space.
Here are five of the 10 stocks that qualified the screening:
Cal-Maine Foods Inc . (CALM) , based in Jackson, MS, is engaged in the production, grading, packaging, marketing and distribution of specialty shell eggs under the Egg-Lands Best, Land O Lakes, Farmhouse, and 4-Grain brands, and also under private labels. This Zacks Rank #2 stock has a 3–5 year estimated EPS growth rate of 9% and a Value score of ‘A.’
Standard Motor Products Inc. (SMP) is one of the leading manufacturers, distributors and marketers of automotive replacement parts in the U.S. The stock, with a Zacks Rank #1 and a Value score of ‘A,’ currently has a projected 3–5 year EPS growth rate of 15%.
Korea Electric Power Corp. (KEP) , also known as KEPCO, is an integrated electric utility engaged in the generation, transmission and distribution of electricity as well as development of electric power resources in South Korea. This Zacks Rank #1 stock’s 3–5 year EPS growth rate is pegged at 25%. The stock has a Value score of ‘A.’
Comfort Systems USA Inc. (FIX) is a national provider of comprehensive heating, ventilation and air conditioning installation, maintenance, repair and replacement services in the U.S. The stock currently has a Zacks Rank #2 and a Value score of ‘A.’ Also, 3–5 year EPS growth rate for the stock is estimated at 10%.
Colombes, France-based Arkema S.A. (ARKAY) is a producer and seller of chemical products worldwide. The stock, with a Zacks Rank #1 and a Value score of ‘A,’ currently has a projected 3–5 year EPS growth rate of 16.98%.
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CAL-MAINE FOODS (CALM): Free Stock Analysis Report
STANDARD MOTOR (SMP): Free Stock Analysis Report
KOREA ELEC PWR (KEP): Free Stock Analysis Report
COMFORT SYSTEMS (FIX): Free Stock Analysis Report
ARKEMA-ADR (ARKAY): Free Stock Analysis Report
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