4 Undervalued Small Cap Stocks With Impressive Sales History In The Residential Construction Industry – (BZH, KBH, GFA, HOV)

  on Aug 22,2012 Posted in Investment Ideas ,Small Cap Ideas
 
Share |
We're on   

The Price to Sales Ratio (Price/Sales) is a stock valuation tool figured the same way as P/E, except with a company’s annual sales as the denominator instead of its earnings. What is an advantage of using the P/S ratio? It is based on sales, a number that is more difficult to manipulate and is subject to fewer accounting predictions than earnings. Also, because sales is likely to be more stable as compared to profit, P/S can be a good tool for screening companies with fluctuating earnings patterns.

The important thing to consider while using the P/S ratio is that a dollar of earnings has essentially the same value regardless of the level of sales needed to create it. In other words, a dollar of sales at a highly profitable firm is valued at more than a dollar of sales for a company with narrow profit margins.

This means comparing price/sales is usually helpful only when comparing companies in similar industries. This article includes stocks that have a low price-to-sales ratios (below 1) and reported high sales growth in last five years (above 25%). Today we focused on the residential construction industry.

Beazer Homes USA, Inc (NYSE:BZH)’s last closing price was $2.89 per share and maintains a price-to-sales ratio at 0.37%. In the last five years, the company’s full-year sales growth remained over -32.56% a year on average and the company’s earnings per share moved up by an average rate of 25.03%. BZH designs, builds, and sells single-family and multi-family homes in 16 states in the United States

KB Home (NYSE:KBH) operates as a homebuilding and financial services company in the United States. KB Home at its latest closing price of $10.45, has a price-to-sales ratio of 0.57 and total revenues increased in the last quarter of -32.48%. Tracking the last five years, KB Home’s sales grew 1.00% a year on average and the company’s net income advanced by an average rate of 12.53%.

Gafisa SA (ADR) (NYSE:GFA) ended last trade at $4.01 a share and the price is down more than -12.83% so far this year. The company maintains price to sales ratio of 0.57. Its earnings stood at 35.32% a year on average in the last five years. The company’s net income reported an average growth rate of -5.36%. GFA operates as a homebuilder in Brazil. It engages in the development of residential buildings, including luxury buildings comprising swimming pools, gyms, visitor parking, and other amenities for upper-income customers.

Hovnanian Enterprises, Inc (NYSE:HOV) designs, constructs, markets, and sells residential homes in the United States. Hovnanian Enterprises, Inc (NYSE:HOV)’s profit moved down -28.67% a year on average over the past five years and its sales growth moved at a higher pace over the same period with a raise of -66.28% a year on average.

Disclosure: The views and opinions expressed in this article are exclusively those of the authors who have no stake in any stocks mentioned, and hold no plan to acquire any stake within the next 5 days.

 



 

Leave a Reply