Investors over the years have created countless metrics by which to measure the intrinsic value of a stock, but one metric that can always be counted on to supply important information is a firm's price/sales ratio. By seeking out companies that trade at levels below revenues, investors may be able to spot undervalued stocks that can prove to be good value plays. Here are a few big names that you may be surprised to hear trade below their sales.

IN PICTURES: World's Greatest Investors

Casino Stocks Beating The Odds
Las Vegas was hammered during the recession. With tourists refusing to travel, the entire city took a beating. The real estate market crashed and burned, and the major hotel and casino operators all feared for their livelihood. In the past nine months, however, casino stocks have roared back. The Las Vegas Sands (NYSE: LVS) and Wynn Resorts (Nasdaq: WYNN) are up 425% and 200%, respectively, since April 2009. MGM Mirage (NYSE: MGM) has also joined in the party, rebounding 300% over the same period. While that may not startle anyone, you may be surprised to hear that MGM trades at a P/S multiple well below par. At a P/S of only 0.85, MGM seems grossly undervalued when compared to its two biggest competitors, which both come in with P/S over 2.5. While MGM has struggled to keep up with LVS and WYNN in earnings, this stock still may be worth a look as a possible value play.

Speaking Of Travel And Tourism...
Royal Caribbean Cruises
(NYSE: RCL) has followed the same pattern as Vegas, rebounding from a tumultuous 2008 and early 2009 to land back near the $30 level, up 300% in the past year. Royal Caribbean also trades at a small discount to sales (0.98), but it sells for a deep discount to book value at only 0.79, even after the recent surge. Comparing Royal Caribbean to its biggest competitor, Carnival (NYSE: CCL), it looks as though RCL may be riding a bit too high. With a P/E of 36.5, more than double that of Carnival, and lagging earnings, it may be tough to maintain the momentum it has built in the past year.

Another stock trading at a deep discount to revenues is Marathon Oil (NYSE: MRO), coming in with a P/S ratio of only 0.46. Marathon also trades slightly below book value (0.98), adding to the argument that MRO may be undervalued by the markets right now. While it doesn't have the resources to compete with industry giants like Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), Marathon sports positive earnings with growth pegged at 40% higher than the industry average for the coming year.

Luxury Retail Rebound Predicted
Lastly, we take a look at the luxury retail sector, namely Saks (NYSE: SKS), which trades at a P/S of only 0.42. While Saks has struggled to generate revenues in this economic climate, many analysts predict a rebound for luxury retailers in 2010 as consumers begin to venture back into high-end department stores, which enjoyed so much success in the years before the recession. Although earnings have not been good for Saks, the retailer is hoping to build momentum from its last quarter, when the company recorded a 1 cent per share profit in the face of expected losses in the range of 11 cents. While Saks might be a bit of a gamble at this point, any upturn in the economy would prove very profitable for luxury retailers like Saks and Nordstrom (NYSE: JWN).

Opportunities For Nice Profits
Keeping an eye out for companies that trade at discounts to sales can provide investors with opportunities for nice profits, where others that tend to focus solely on P/E and P/B ratios may miss out. (To learn more, see Use The Price-To-Sales Ratios To Value Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!