Chicago, IL – November 29, 2021 – Stocks in this week’s article are MarineMax, Inc. HZO, Silicon Motion Technology Corporation SIMO, The Mosaic Company MOS, TravelCenters of America Inc. TA and Standard Motor Products, Inc. SMP.
Buy These 5 Low Price-to-Sales Stocks for a Rewarding Portfolio
Investment in stocks made after an analysis of valuation metrics is usually 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, 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.
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. 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.
To that end, MarineMax, Silicon Motion Technology, The Mosaic, TravelCenters of America and Standard Motor Products have been selected as the stocks with potential today.
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 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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1832173/buy-these-5-low-price-to-sales-stocks-for-a-rewarding-portfolio
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