Top 5 Low Price-to-Sales Stock Picks for Value-Focused Investors

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.

Hamilton Insurance Group, Ltd. HG, Macy's Inc. M, G-III Apparel Group GIII, California Water Service Group CWT and UFP Industries UFPI 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 16 stocks that qualified the screening:

Hamilton Insurance operates as a specialty insurance and reinsurance company in Bermuda and internationally. The company operates Hamilton Global Specialty, Hamilton Select and Hamilton Re underwriting platforms. HG is benefiting from strong execution, a clear growth roadmap and disciplined capital management. The company is capitalizing on profitable market opportunities, with gross premiums written rising meaningfully, reflecting momentum in property, casualty and specialty lines.

Hamilton Insurance’s underwriting strategy is increasingly diversified and supported by a stable attritional loss ratio. Its focus on long-term portfolio resilience is evident in efforts to refine its risk mix and manage volatility. With a well-capitalized balance sheet, prudent reserve development and a scalable underwriting platform, Hamilton Insurance is well-positioned to navigate industry headwinds while capturing sustained, profitable growth in the global specialty insurance and reinsurance markets. HG currently sports a Zacks Rank #1 and has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 the key pillars of Macy’s growth strategy. M has a Value Score of A and flaunts a Zacks Rank #1 at present.

GIII Apparel is a designer, manufacturer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. G-III Apparel drives growth through four strategic pillars, focusing on product differentiation, strengthening DTC channels, accelerating international expansion and leveraging licensing to broaden brand reach. 

Owned brands, including Donna Karan, DKNY, Karl Lagerfeld and Vilebrequin, are generating higher margins and offsetting declines from legacy PVH licenses. GIII currently has a Value Score of A and a Zacks Rank #2.

San Jose, CA-based 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.

UFP Industries is a holding company with subsidiaries throughout North America, Europe, Asia and Australia. The company supplies wood, wood composite and other products in the retail, industrial and construction markets. UFPI benefits from its focus on long-term business plans, product innovation, accretive acquisition strategies and rewarding shareholders.

Acquisitions have been UFP Industries’ preferred mode of solidifying its product portfolio and leveraging business opportunities. One of its five-year financial goals includes small tuck-in acquisitions, contributing to its goal of reaching annual unit sales growth of 7-10%. Product development is integral to UFP Industries’ strategies for its business units. The company’s investments in innovation and acceleration are poised to yield greater results in the upcoming periods. UFP Industries currently has a Value Score of A and a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research