The price to sales ratio demonstrates how much an investor is paying per dollar the company makes in sales. It is found by dividing the current stock price by the company’s revenue per share for the trailing 12 months. A P/S of 1 means you are paying $1 in stock for every $1 the company sales. A P/S ratio under 1 means you are paying less than $1 in stock for each $1 the company sales, and a P/S ratio over 1 means you are paying more.
Investors use the P/S ratio to screen for undervalued stocks. GuruFocus has a low-P/S ratio screener for this purpose. The Low P/S screener allows you to arrange stocks by their predictability as well, or compare within or among certain industries, market caps or countries. (GuruFocus also has a helpful low-P/B stock screener here.)
These are the stocks trading near their historical low P/S ratios as of Thursday, according to GuruFocus data: PepsiCo Inc. (NYSE:PEP), FTI Consulting (NYSE:FCN), Matthews International A (NASDAQ:MATW), CACI International A (NYSE:CACI) and Mantech International A (NASDAQ:MANT).
PepsiCo Inc. (NYSE:PEP)
PepsiCo is trading at a P/S ratio of 1.5, close to its 10-year low of 1.47. The company’s current stock price is $63 and revenue per share for the trailing 12 months is $42.11.
PepsiCo is a strong company with considerable guru investment whose stock price has not been appreciating as quickly as its revenue in the last several years, causing its P/S ratio to narrow.
Over the last 10 years, the company has grown in most measurements. For instance, revenue per share grew at a rate of 12.2%, EBITDA at a rate of 8.7%, free cash flow at a rate of 5.9% and book value at a rate of 9.1%. Return on assets, however, have been dwindling over recent years, calling into question management’s allocation of capital.
Donald Yacktman of Yacktman Asset Management is a huge proponent of PepsiCo and its ability to continue growth into the future. “We look in terms of a 10-year time frame,” he said recently in a CNBC interview, “and I wouldn’t be surprised to see between the dividends and the price appreciation to make 150% over 10 years.”
FTI Consulting (NYSE:FCN)
FTI Consulting has a P/S ratio of 1, close to its 10-year low of 0.98. The stock price is $39.17, and its revenue per share for the trailing 12 months is $36.85.
FTI Consulting Inc. is a multi-disciplined consulting firm that helps organizations enhance and protect their enterprise value, with practices in the areas of financial restructuring, litigation support and engineering/scientific investigation. GuruFocus gives it the business predictability rank of 4.5-Star.
FTI Consulting traded for near $75 per share in 2008, but its price fell over subsequent years. Revenue, meanwhile, grew each year from $1.3 billion in 2008 to almost $1.6 billion in 2011. The company has also aggressively buying back shares — $500 million worth — in the last two years, further raising its revenue per share and narrowing its P/S ratio.
For the year ended Dec. 31, 2011, revenue was $1.6 billion, up 11.8% compared to the prior year, which was far greater growth than in recent years. Organic growth accounted for 4.2% of that, and the appreciation of the U.S. dollar another 0.7%. Acquisition-related revenues contributed as well — the acquisition of LECG brought double-digit growth to several of its segments.
FTI has been generating positive free cash flow, EBITDA and net income for the last decade, but is not popular with GuruFocus gurus. Joel Greenblatt is the only one who has a position in it.
Matthews International A (NASDAQ:MATW)
Matthews International has a P/S of 1, which is close to its 10-year low of .95. The stock is trading at $31.17, and its revenue per share for the trailing 12 months is $31.13.
Matthews International Corporation is a designer, manufacturer and marketer principally of memorialization products and brand solutions, with a market cap of $862.4 million. GuruFocus rated Matthews International the business predictability rank of 2.5-star.
Matthews’ revenue has been growing over the last 10 years, from $428 million in 2002 to $899 million in 2011, and $909 million in the trailing 12 months. Over the same time, its share price increased 26%. Revenue per share was pushed up further by the company’s stock repurchase program which in January 2010 approved the repurchase of 2.5 million shares, of which 330,000 remain to be purchased. Once those are repurchased, a new authorization to purchase an additional 2.5 million shares goes into effect.
Acquisitions have been contributing to the company’s sales increases recently. Sales for the first quarter of fiscal 2012 increased 5% to $217.2 million, compared to $207.3 million in the same quarter of 2011, primarily due to sales growth in its Brand Solutions business and Cremation segment, and the impact of acquisitions.
Two gurus hold this stock: Mario Gabelli and John Rogers.
CACI International A (NYSE:CACI)
CACI International has a P/S ratio of 0.4, close to its 10-year low of .38. It has a share price of $59.44 and revenue per share for the trailing 12 months of $130.
CACI International Inc. provides professional services and IT to the U.S. government and has a market cap of $1.56 billion.
Since 2007, its revenue has increased each year from $1.9 billion to a record $3.6 billion in 2011, and $3.8 billion in the trailing 12 months. Its stock price increased 24% over the last five years. Also in the last five years, the P/S ratio has been declining:
From 2010 to 2011, the company’s revenue increased by $428.5 million, or 13.6%. Roughly $364.5 million, or 11.6%, was organic growth derived from services to the DoD, intelligence and federal civilian agency customers. The other $64.1 million, or 2%, came from acquisitions made in fiscal 2010 and 2011.
Five gurus hold this stock: Joel Greenblatt, John Hussman, David Dreman, Ray Dalio and George Soros.
Mantech International A (NASDAQ:MANT)
Mantech International has a P/S of .4, close to its 10-year low of .38. It has a stock price of $33.27 and revenue per share for the trailing 12 months of $78.26.
Mantech’s P/S ratio and stock price have been trending downward over the past several years, while revenue has increased considerably — from $1.9 billion in 2008 to $2.9 billion in 2011.
Revenue increased 10.2% from $2.6 billion in 2010 to $2.9 billion in 2010. Revenue growth of $176.8 million was due to organic growth from contract awards and expansion on prime positions in its C4ISR support business, including its S3 vehicle. Another $128.8 million came from its acquisitions of S&IS, MTCSC, TranTech and WINS. The growth in these areas was offset by a decline in its global logistic services contracts.
The company expects 2012 revenue growth due to acquisitions and recent and anticipated contract awards, but is aware that the government intends to decrease its professional and technical services contracts budget in coming years. The withdrawal of U.S. troops from overseas conflict may also mean the government needs their services less.
Three gurus hold this stock: Joel Greenblatt, Third Avenue Management and David Dreman.
See more companies at historical low price/sale ratios here.