Back to top

Image: Bigstock

Screening for Cheap Stocks Using the P/S Ratio

Read MoreHide Full Article

  • (0:45) - Using The Price To Sales Ratio To Find Good Buys
  • (6:20) - Tracey’s Top Stock Picks
  • (23:00) - Big Takeaways From Stock Screener: WMT, WHR, USFD, MOD, ANDE


Welcome to Episode #245 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

As the growth stocks have continued to rally, there have been concerns about valuation, especially when it comes to their price-to-sales (P/S) ratios.

For some growth stocks, the P/S ratio has soared over 10.

A P/S ratio of 1 means an investor is paying $1 for every $1 of sales. It’s a neutral P/S ratio.

A P/S ratio under 1, usually indicates value because that means an investor is getting the sales for less than they are worth.

We know a lot of growth stocks have high P/S ratios, but how many stocks have low P/S ratios right now?

Screening for Cheap Stocks Using the P/S Ratio

Obviously, the first component of a screen would be a P/S ratio under 1.0.

Tracey also added stocks trading above $5 to keep out the penny stocks.

Additionally, adding the Zacks Rank of #1 (Strong Buy) or #2 (Buy) also should, hopefully, get you companies that have rising earnings estimates.

The Rank will add a component of quality to this screen. We don’t want just cheap stocks. We want good, cheap stocks.

This screen returned 170 stocks.

That’s a lot of cheap stocks with Strong Buy and Buy ranks.

What’s in this screen?

5 Cheap Stocks with High Zacks Ranks

1.       Walmart (WMT - Free Report) has a price-to-sales ratio of 0.7 but it’s forward P/E is a bit high, at 23.9x. It’s expected to grow earnings by 8.8% this fiscal year and 5.8% next year. Over the last year, the shares have lagged the S&P 500, adding just 8.2% while the S&P 500 is up 36%.

2.       Whirlpool (WHR - Free Report) has a P/S ratio of just 0.6. Earnings are expected to rise 41% this year. Over the last year, shares have gained 33% but they have weakened over the summer on fears of “peak” demand as housing and nesting cools. But has it?

3.       US Foods Holding Corp. (USFD - Free Report) is a foodservice distributor to over 300,000 restaurants in the United States. It has a P/S ratio of just 0.3. Shares spiked in Nov 2020 on news of the vaccine but have cooled off the last 3 months, falling 14%, as the outbreak of the Delta variant has gained steam. Is this a buying opportunity?

4.       Modine Manufacturing (MOD - Free Report) is a thermal management company that operates in ventilation & AC, data centers and heating. It saw record free cash flow in fiscal 2021 of $117 million. Shares are cheap with a P/S ratio of 0.46 and a forward P/E of 9.9. With shares up 213% in the last year, is it too late to get in?

5.       The Andersons (ANDE - Free Report) has the lowest P/S ratio of these 5 companies. It has a ratio of just 0.1. Earnings are expected to rise 1944% this year to $1.84 from $0.09 last year. This agribusiness company has four segments, including commodity trading, ethanol, plant nutrient and rail sector. Shares have fallen 14.4% in the last month. Is it time to buy?

What else should you know about finding cheap stocks using the P/S ratio?

Listen to this week’s podcast to find out.

Published in