5 Stocks With Low Price-to-Sales Ratios Poised to Multiply Your Gains

Investing in stocks based on valuation metrics is considered a smart strategy. The price-to-earnings (P/E) ratio is often the go-to metric due to its simplicity and ease of use. However, the price-to-sales (P/S) ratio is more useful for evaluating stocks of companies that are unprofitable or in early growth stages, as it helps assess value when earnings are minimal or non-existent.

Molson Coors Beverage Company TAP, G-III Apparel Group GIII, Gibraltar Industries ROCK, PRA Group PRAA and Medallion Financial MFIN are some companies with low price-to-sales ratios and the potential to offer higher returns.

What is the Price-to-Sales Ratio?

While a loss-making company with a negative price-to-earnings ratio falls out of investor favor, its price-to-sales can indicate the hidden strength of the business. This underrated ratio is also used to identify a recovery situation or ensure 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. 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 a higher price-to-sales ratio.

In any case, the price-to-sales ratio used in isolation cannot do the trick. One should analyze other ratios like Price/Earnings, Price/Book and Debt/Equity before arriving at any investment decision.

Screening Parameters

Price to Sales less than the 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 the Median Price to Earnings for its Industry: The lower, the better.

Price to Book (Common Equity) less than the 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 the 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: The stocks must be trading at a minimum of $5 or higher.

Zacks Rank less than or equal to #2 (Buy): Zacks Rank #1 (Strong Buy) or #2 stocks are known to outperform, irrespective of the market environment.

Value Score less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.

Here are five of the 12 stocks that qualified the screening:

Molson Coors is one of the largest brewers in the world and boasts a strong portfolio of well-established brands. The company crafts high-quality, innovative products, aiming to be the first choice for its consumers. It has been well-placed on the back of its revitalization plan and the premiumization of the global portfolio.

TAP is on track with its revitalization plan focused on achieving sustainable top-line growth by streamlining the organization and reinvesting resources into its brands and capabilities. To accelerate portfolio premiumization, the company has been aggressively growing its above-premium portfolio for the past few years. The EMEA&APAC display a significant ability to premiumize for beer and beyond beer. TAP currently has a Zacks Rank #2 and a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed, owned and private-label brands. GIII has accelerated digital growth. It strives to become the best omnichannel organization, enhancing the DKNY and Karl Lagerfeld Paris e-commerce platforms, and partnering with Amazon and Fanatics. Digital and omnichannel growth is a key priority.

GIII’s commitment to brand building, effective marketing, cost management and market expansion provides a solid foundation for continued growth and profitability in fiscal 2025 and beyond. The company's strategic initiatives leverage design and merchandising strengths to drive profitable sales growth through innovative products and collections. G-III Apparel currently has a Value Score of A and a Zacks Rank #2.

Buffalo, NY-based Gibraltar manufactures and distributes products to the industrial and buildings market. The products range from ventilation and expanded metal to mail storage solutions and rain dispersion products and solutions. ROCK has been benefiting from its focus on operational improvements and the Three-Pillar Strategy. The company continues to accelerate the implementation of three pillars through portfolio management initiatives, improvement of the business system and strengthening of the organization.

Gibraltar continues to accelerate its 80/20 initiatives in products and operations, optimizing the supply chain with market price actions. The company's focus on the 80/20 initiative has propelled its Residential segment’s performance. Also, the high demand for agricultural facilities suggests a solid growth runway, especially for high-tech produce farms. ROCK has a Value Score of B and a Zacks Rank #2 at present.

PRA Group is a global financial and business services company in the Americas, Australia and Europe. Its primary business involves the purchase, collection and management of portfolios of non-performing loans. The company’s solid inorganic growth story, strategic initiatives and improving cash collection position it well for long-term growth. Its improving portfolio supply, with continued credit normalization in the United States and better pricing in the domestic market, are major tailwinds. A positive purchasing environment benefits the firm.

PRAA is reaping the benefits of its decision to expand its presence beyond the primary debt collection business, stepping into government collections and audit services. Strategic acquisitions boost its performance. Key moves include the acquisition of eGov Systems to strengthen its government business, along with partnerships with the IRS and Banco Bradesco S.A. PRA Group has a Value Score of B and currently flaunts a Zacks Rank #1.

New York-based Medallion operates as a specialty finance company in the United States, originating and servicing a growing portfolio of consumer and mezzanine loans across various industries through its subsidiaries. MFIN has significantly broadened its lending focus beyond taxi medallions, expanding into consumer and commercial loans. The company now prioritizes recreation (RV, boat and motorcycle loans), home improvement and strategic commercial lending, diversifying revenue streams and mitigating risk in high-demand sectors.

Medallion has demonstrated robust financial performance and strategic growth, positioning itself as a compelling investment opportunity. Its emphasis on prime and super-prime borrowers has enhanced credit quality and reduced risk. With a disciplined approach to growth and shareholder returns, Medallion is well-equipped for long-term value creation. MFIN presently has a Value Score of A and a Zacks Rank #2.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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