5 Low Price-to-Sales Stocks to Fetch Solid Portfolio Gains (2024)

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, ultimately, 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.

PagSeguro Digital PAGS, Affiliated Managers Group AMG, Cigna Group CI, Barrett Business Services BBSI and Fidelis Insurance Holdings Limited FIHL are some companies with a low price-to-sales ratio and the potential to offer higher returns.

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 19 stocks that qualified the screening:

São Paulo, Brazil-based PagSeguro Digital provides financial technology solutions and services for micro-merchants, and small and medium-sized businesses in Brazil and internationally. The company offers multiple digital payment solutions, in-person payments via point-of-sales devices and prepaid card services. PagSeguro Digital has been diversifying its payment business and 2022 marked the consolidation of its HUBs initiative to extend its best-in-class services to small and mid-sized clients.

The company’s disciplined capital allocation has significantly aided operating and investing cash flow generation, positioning it to explore opportunities in payments and financial services in Brazil in the coming years. The PAGS stock has a Value Score of A and currently flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Affiliated Managers is a global asset manager with equity investments in a large group of investment management firms or affiliates. The company has been well-poised for growth on the back of successful partnerships, its global distribution capability and a robust balance sheet. Its capital distributions seem sustainable. Diverse product offerings, robust assets under management balance and global distribution capability are expected to continue driving AMG’s top line.

Affiliated Managers, with its strong balance sheet and liquidity position, has considerable capability to invest in other companies and generate meaningful growth through investments. A robust liquidity position is likely to support investments in alternatives, thereby generating solid earnings. AMG currently carries a Zacks Rank #2 and has a Value Score of A.

Cigna Group is a global health company. It has been growing its membership for many quarters now. We expect it to keep growing. The company’s diversified product portfolio, wide agent network and superior service are major positives. In its government business, including Medicare Advantage, CI continues to drive strong market and product expansion, as well as in-market growth.

The company has been focused on strategic bolt-on buyouts and tie-ups to boost inorganic growth. Its revenues have been increasing consistently since 2010, driven by several acquisitions, its superior operating performance, and the provision of quality products and services. Cigna Group’s consistent focus on providing affordable, predictable and simple solutions to its clients positions it well for the long haul. CI currently has a Value Score of A and a Zacks Rank #2.

Barrett provides business management solutions for small and mid-sized companies in the United States. The company has developed a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry.

The company continues to gain from an expanding client base and the ongoing rollout of BBSI Benefits. Additionally, Barrett continues to witness positive results in its pricing and cost-management strategies, resulting in strong, sustainable earnings growth. BBSI currently has a Value Score of A and a Zacks Rank #2.

Based in Pembroke, Bermuda, Fidelis Insurance is an insurance holding company, with insurance and reinsurance operations principally in Bermuda, Ireland and the U.K. It is a global specialty insurer, leveraging strategic partnerships to offer innovative and tailored insurance solutions. The company is positioned to continue delivering long-term profitable growth and shareholder value, backed by its lead market position and balance sheet strength.

Fidelis Insurance has been focused on actively managing its capital to foster sustainable growth and maintain its track of best-in-class underwriting performance. FIHL has a Value Score of A and currently flaunts a Zacks Rank #1.

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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.