Low Price,sales Ratio a Big Plus
Dorfman, John, Tribune-Review/Pittsburgh Tribune-Review
Why did I ever stop?
From 1998 through 2006, I published nine sets of recommendations for stocks with a low price/sales ratio. This measure resembles the familiar price/earnings ratio except that instead of dividing a stock's price by its earnings per share, you divide by its sales (revenue) per share.
Of the nine lists, six beat the Standard & Poor's 500 Index, and all nine were profitable. The average return was more than 47 percent, compared with 4.1 percent for the S&P 500.
My batting average was inflated by a very lucky year in 2000. Bear in mind that past performance doesn't guarantee future results. The figures are hypothetical and do not include transactions costs or taxes. And performance for my column recommendations should not be confused with results for any real-money portfolio I run.
Now I'm resuming this series of articles and have five stocks with low price/sales ratios to recommend. I consider a stock cheap if it sells for less than 1.0 times sales, and very cheap at 0.5 or less, although that varies to some extent depending on the industry. The average stock sells for about 1.3 times sales.
Stocks that look undervalued on this measure are often turnaround candidates. They frequently are established businesses with big customer bases. But they have been unable to turn their revenue flow into robust profits.
World Fuel Services Corp. (INT) of Miami provides fuel, maps, weather reports and other services to planes large and small around the world. It has one of the lowest price/sales ratios around, 0.08.
Since the world isn't totally crazy, you might guess that World Fuel's profit margins are low. That is correct: The operating margin was about 0.7 percent last year. Even so, I think the stock is attractively cheap. It's worth noting that the company has been profitable in each of the past 10 years, with rising profits in nine of those years. Right now, investors are worried about whether Europe will pull the whole world into a recession. My best guess is that it won't, and that aviation activity will be rising in 2013- 2014.
GT Advanced Technologies Inc. (GTAT) of Merrimack, N.H., makes furnaces to melt silicon and purify silicon used in solar panels; it also makes furnaces used to create artificial sapphires used in LED lighting. At less than four times earnings and 0. …