CVS And Archer-Daniels-Midland Look Good On This Ratio

Forbes

4 days ago

An Archer Daniels Midland plant in Decatur, Illinois. AP Photo/Seth Perlman, File
There are many ways companies can manipulate their reported profits. Fudging sales (also known as revenue) is more difficult.
That's one reason why I always check the price-to- sales ratio when I'm considering a stock. It's simply the stock's price divided by sales per share.
For example, CVS Health Corp. (CVS) sells for $64.78 a share. For each share of stock, it has revenue of $300.52. So, its price-to-sales ratio is 0.22.
That's quite low. An average price-to-sales ratio today is 3.1, up from about 2.4 normally. I prefer to see ratios under 2.0, and anything under 1.0 really catches my eye.
Naturally, companies with low profit margins sell for a lower price/sales multiple than very profitable companies do. So, it's useful to compare a stock's price/sales ratio with that same stock's historical average.
Over the past ten years, CVS stock has averaged a 0.37 ratio. At the current 0.22, it's cheap compared to its own norm.
I think CVS is a bargain. Rival Walgreen's is closing stores. Another rival, Rite Aid, declared bankruptcy in May – for the second time.
Here are a few more stocks that look good to me now, based on their price-to-sales ratios.
A processor of agricultural commodities and a big grain trader, Archer-Daniels-Midland Co. (ADM) is based in Chicago, Illinois. Its price/sales ratio is 0.32, which is below most of its industry peers and below its own historical average of 0.40.
Wall Street analysts can't stand this stock. Of the dozen analysts who cover it, nary a one rates it a 'buy.' Nine call it a 'hold' (often a euphemism for sell) and three rate it 'underperform.' That's pretty gloomy, considering that Archer-Daniels has increased its earnings at better than a 10% annual clip in the past decade.
Flex Ltd., headquartered in Austin, Texas, is a contract electronics manufacturer. Among its customers are Johnson & Johnson, Abbott, Nike, Bose, Ford, Applied Materials and Teradyne. To me, that looks like a high-quality and diversified customer base.
Flex has increased its profits at a 10% annual clip for the past decade. Last year was better, with a 22% profit increase on an 8% increase in sales. The price/sales ratio is 0.8, which is above the company's usual valuation but still in attractive territory, by my reckoning.
I don't know if we've already hit the bottom of the commercial real-estate bust that began with the Covid-19 epidemic. But if not, I think we're close.
Therefore, I think this is a good time to consider Jones Lang LaSalle Inc. (JLL), a leading commercial real-estate broker, property manager and real-estate investor. It sells for 0.52 times revenue, and revenue has grown nearly 13% a year for the past decade.
In a possible sign that the office market is reviving, Jones Lang's revenue rose a bit more than 13% last year.
As a speculation, I like Mission Produce Inc. (AVO) of Oxnard, California, which produces and sells avocados. Perhaps it's a fad, but avocados have gotten very popular lately, so much so that avocado rustling (theft from orchards and trucks) has become a big problem.
Last year, Mission's profits jumped 84% on a 29% sales increase. The stock trades at 0.62 times revenue. It has strong finances, and very little Wall Street coverage.
In 22 years, my recommendations based on an attractive price-to-sales ratio have achieved an average return of 28.1%, dwarfing the 10.4% average for the Standard & Poor's 500 Total Return Index.
Bear in mind that my column results are hypothetical and shouldn't be confused with results I obtain for clients. Also, past performance doesn't predict the future.
My high average return owes a lot to large gains on the picks I made in 2000, 2002, and 2012. Of my 22 past columns on this subject, 18 have been profitable and 12 beat the S&P 500.
My picks from a year ago mostly stumbled. Wabash National Corp. (WNC), which makes truck trailers, fell 51%. Bunge Global SA (BF), a processor of agricultural products, dropped nearly 29%. Reinsurance Group of America Inc. (RGA) fell 8%.
Only two of my five picks rose. Pilgrims Pride Corp. (PPC), a chicken processor, jumped 32%. PC Connection Inc. (CNXN) eked out a small positive return, about 3%.
For the same period (July 15, 2024 to July 11, 2025), the Standard & Poor's index advanced 12.6%.
Disclosure: I currently have no positions in the stocks mentioned in today's column, personally or for clients.