Chicago, IL – March 31, 2023 – Stocks in this week’s article are CNA Financial CNA, Medallion Financial Corp. MFIN, ArcelorMittal MT, KB Home KBH and ePlus PLUS.
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.
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.
CNA Financial, Medallion Financial Corp., ArcelorMittal, KB Home and ePlus are some companies that have a low price-to-sales ratio and the potential to offer higher returns.
Here are five of the 11 stocks that qualified the screening:
CNA Financial is one of the most versatile property and casualty insurers, maintaining a combined ratio at favorable levels despite a tough operating environment, which, in turn, leads to underwriting profitability. A compelling product portfolio, better retention, improving pricing, and new business growth should continue to fuel premium increase.
Stable fixed-income returns and higher limited partnership returns should continue to support investment results. Strong balance sheets and cash flows enable the insurer to engage in shareholder-friendly moves like dividend hikes.
CNA Financial has been witnessing substantial improvement in the combined ratio of its property & casualty business over the past few years. A company’s combined ratio reflects its underwriting profitability. CNA Financial has been able to maintain the underlying combined ratio below 95 for 12 straight quarters. CNA currently sports a Zacks Rank #1 and has a Value Score of A. It has an expected long-term earnings growth rate of 5%.
Medallion Financial operates as a finance company in the United States. It originates and services a growing portfolio of consumer loans and mezzanine loans in various industries. Key industries served include recreation (towable RVs and marine) and home improvement (replacement roofs, swimming pools and windows).
The company has been witnessing continued growth in its consumer lending businesses. MFIN has a Value Score of A and currently sports a Zacks Rank #1.
Luxembourg-based ArcelorMittal is the world’s leading steel and mining company. With a presence in more than 60 countries, it operates a balanced portfolio of cost-competitive steel plants across the developed and developing world. It is the leader in all the main sectors — automotive, household appliances, packaging and construction.
The company is expanding its steel-making capacity and remains focused on shifting to high added value products. As part of this move, ArcelorMittal is expanding its automotive steel line of products. The company is expanding its global portfolio of automotive steels by launching a generation of AHSS. The launch of these steels is in sync with the company’s Action 2020 program.
ArcelorMittal is focused on executing its cost-reduction actions in the wake of the coronavirus pandemic. The company is executing a new $1-billion fixed cost reduction program, which includes actions to improve productivity and maintenance efficiency, and rationalize support functions. The MT 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.
Based in Los Angeles, CA, KB Home is a well-known homebuilder in the United States and one of the largest in the state. The company’s Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, townhomes, and condominiums.
KB Home’s Financial Services operations offer mortgage banking, title and insurance services to homebuyers. The segment earns revenues mainly from insurance commissions and the provision of title services. The company’s growth is driven by the Returns-Focused Growth Plan, which includes the execution of its core business strategy, improving asset efficiency and monetizing significant deferred tax assets.
Its long-term growth is attributable to the increase in backlog and its ability to match housing starts to net orders. Also, the company’s robust land acquisition strategies assist it to reduce debt and, boost gross margin and returns. The KBH stock currently has a Value Score of A and a Zacks Rank #2. It has an expected long-term earnings growth rate of 7.1%.
Herndon, VA-based ePlus is a provider of information technology (IT) solutions that enable organizations to optimize their IT environment and supply-chain processes. It operates in the United States and internationally. ePlus serves commercial entities, state and local governments, government contractors, and educational institutions.
ePlus is benefiting from the solid demand for its security, modern data center and networking solutions. The company is focused on driving sustainable, long-term growth by continuing to expand its capabilities, investing in talent and capturing share in targeted high-growth market segments. The company currently has a Value Score of B and a Zacks Rank #2.
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ArcelorMittal (MT) : Free Stock Analysis Report
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