Unlock Big Gains With These 5 Undervalued Price-to-Sales Stock Picks

Investing in stocks based on valuation metrics is a proven strategy for identifying opportunities with strong upside potential. While the price-to-earnings (P/E) ratio is a popular tool for gauging value, it has its limitations, especially when evaluating companies that are unprofitable or still in their early growth phases.

In such cases, the price-to-sales (P/S) ratio becomes particularly valuable. By comparing a company’s market capitalization to its revenues, the P/S ratio offers a clearer picture of value when earnings are minimal or volatile.

If you are looking for growth at a discount, low P/S stocks can offer compelling opportunities. These stocks often trade below their intrinsic value, making them attractive to investors seeking upside potential without paying a premium. While the P/S ratio alone does not guarantee success, when combined with strong fundamentals and positive business momentum, it can signal a stock poised for a breakout.

Macy's Inc. M, California Water Service Group CWT, Shoe Carnival SCVL, Pebblebrook Hotel Trust PEB and FTI Consulting Inc. FCN 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 ratio 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 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 22 stocks that qualified the screening:

Macy’s is in the process of a complete makeover and has outlined plans under its three-year Bold New Chapter program to better adapt to the evolving retail ecosystem. Notably, the company is banking on Backstage locations, Vendor Direct, Store Pickup and Loyalty Program. The department store chain is investing in areas where it has a strong foothold, and these include dresses, fine jewelry, fragrances, men’s tailored, women's shoes and beauty.

Macy's is an omnichannel retail organization operating stores, websites and mobile applications under three brands — Macy's, Bloomingdale's and bluemercury. The company’s transformation under the Bold New Chapter strategy gained significant traction, with the Reimagine 125 initiative delivering consistent outperformance. Digital initiatives continue to be a key pillar of Macy’s growth strategy. M has a Value Score of A and sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

California Water Service is one of the largest investor-owned water utilities in the United States. The company’s business operations consist of the production, purchase, storage, treatment, testing, distribution and sale of water for domestic, industrial, public and irrigation uses, and for fire protection. In some areas, it also provides wastewater collection and treatment services, including treatment that allows water recycling.

California Water Service’s primary focus is to expand operations in the western United States through acquisitions and continues to explore opportunities to expand regulated and non-regulated water and wastewater activities. The company makes acquisitions to expand its operations and make necessary investments to upgrade the acquired assets to provide high-quality services to an expanding customer base and emergency firefighting requirements. CWT’s acquisitions target new markets in high-growth regions. CWT has a Value Score of B and a Zacks Rank #2 at present.

Shoe Carnival operates as a family footwear retailer in the United States, offering dress, casual, athletic, and seasonal footwear for men, women and children. The company is undergoing a disciplined transformation to strengthen fundamentals and long-term profitability. Its “rebanner” strategy is shifting the mix toward the higher-end Shoe Station banner, attracting more affluent consumers and premium brands, while reducing reliance on value-focused shoppers. 

With margin discipline, a debt-free balance sheet and strong cash flow, Shoe Carnival is investing in growth and store conversions. As Shoe Station expands, SCVL is evolving into a more resilient, diversified and profitable footwear retailer. SCVL currently flaunts a Zacks Rank #1 and has a Value Score of A.

Pebblebrook, an internally managed hotel investment company, continues to demonstrate strong fundamentals, supported by its diverse portfolio of upscale urban and resort hotels. The company’s strategy centers on operational efficiency, disciplined capital allocation and enhancing long-term asset value through targeted redevelopments. Recent property transformations, including the successful repositioning of Newport Harbor Island Resort and the full restoration of LaPlaya Beach Resort, have strengthened portfolio quality and profitability.

Pebblebrook’s focus on productivity initiatives and cost control has helped offset inflationary pressures and protect margins, even amid uneven regional recoveries. With all major redevelopment projects completed, capital needs are expected to moderate, enabling greater free cash flow generation. Pebblebrook remains well-positioned to benefit from resilient travel demand, disciplined expense management and strategic property enhancements that support sustainable, long-term value creation. PEB currently has a Value Score of A and a Zacks Rank #1.

Baltimore-based FTI Consulting is a global business advisory firm that helps organizations manage change, mitigate risks, and resolve complex financial, legal, operational and reputational challenges. The company’s diversified platform across corporate finance, litigation consulting, economic advisory and strategic communications provides resilience and balanced growth. A disciplined focus on talent, innovation and collaboration continues to drive client success and strengthen competitive positioning. 

Operational efficiency, prudent cost management and reinvestment in technology support FCN’s sustainable profitability. Backed by a strong balance sheet and solid cash flow, FTI maintains flexibility for strategic investments and acquisitions. With exposure to both countercyclical and growth-driven markets, the firm remains well-positioned to deliver consistent performance and long-term shareholder value. FCN currently has a Value Score of B and a Zacks Rank #2. 

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can create your own strategies and test them first before taking the investment plunge.

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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. 

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance

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