AAII Stock Screens
A Top-Line Approach:
The Price-to-Sales Ratio Screen
Ken Fisher first popular-
ized the strategy of selecting
stocks based on price-to-sales
ratios in his 1984 book, “Super
Stocks.”
However, price-to-sales ratios (current stock price divided
by sales per share for the last 12 months) truly came into
their own during the dot-com era, as investors sought ways
to value companies whose negative earnings made earnings-
based models useless.
Several years after the bursting of the Internet bubble,
price-to-sales ratios continue to be a useful stock selection
methodology.
Advocates of the price-to-sales ratio strategy argue that
earnings-based approaches to selecting stocks are imperfect
because management assumptions influence earnings. In ad-
dition, temporary developments, such as costs involved with
new product rollouts or cyclical slowdowns can affect earnings
more than sales, often leading to negative earnings.
Having said this, price-to-sales figures are not infallible.
Simply screening for low price-to-sales ratios will tend to
uncover firms that deserve low valuations in addition to
promising investment candidates.
Low Price-to-Sales Screen
AAII developed a low price-to-sales ratio screen that also
considers industry factors and seeks companies with:
• Price-to-sales ratios below historical and industry
norms;
20 AAII Journal
By Wayne A. Thorp, CFA
• Sales growth above industry norms;
• Liabilities relative to assets below indus-
try norms; and
• Relative price strength that exceeds the industry.
Stock Investor Pro, AAII’s fundamental stock screening
and research database program, includes this price-to-sales
screen.
Screen Performance
Each month, AAII.com lists the companies passing the
low price-to-sales screen and tracks the performance of these
stocks in a hypothetical portfolio.
The price-to-sales screen has produced solid performance
since the start of 1998. In fact, it is one of only a handful
of stock screening approaches AAII tracks that has not had
a down year.
Figure 1 illustrates how the low price-to-sales screen has
easily outpaced both the small- and large-cap indexes over the
study period. Between January 1998 and the end of June 2007,
the price-to-sales screen returned 601.9%. Year-to-date, the
screen is up 11.3%, while the S&P 500 has gained 6.0%.
Profile of Passing Companies
We present the characteristics of the companies passing
the price-to-sales screen as of July 6, 2007, in Table 1.
This screen takes a sales-growth-at-a-reasonable-price
approach to isolating stocks, but uses industry norms instead
of overall market averages for its Figure 1. Performance of Low Price-to-Sales Screen
growth and value benchmarks.
At 23.5, the price-earnings ratio
(current share price divided by Price-to-Sales 700%
earnings per share for the last 12
S&P 500
months) of the low price-to-sales 600%
stocks is above the median figure S&P SmallCap 600
of 20.4 for all exchange-listed 500%
stocks. In contrast, both the price-
to-book ratio (share price divided 400%
by shareholder’s equity per share)
and price-to-sales ratio are below 300%
that of the typical exchange-listed
stock. 200%
The screen also looks for
companies with sales growth 100%
greater than their industry’s norm.
The companies currently passing 0%
the screen have shown a 15% an-
nual increase in earnings per share -100%
over the last five years, while all
exchange-listed stocks have seen 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
earnings growth at an average Monthly
annual rate of 15.4% over the Return (%)
1998 1999 2000 2001 2002 2003 2004 2005 2006 YTD Cum'l
Std Dev
(%)
same period. Looking forward, Low Price-to-Sales* 13.2 21.1 23.3 43.3 1.3 69.8 11.1 16.9 16.6 11.3 601.9 5.7
S&P 500 26.7 19.5 (10.1) (13.0) (23.4) 26.4 9.0 3.0 13.6 6.0 54.9 4.3
both the companies passing the S&P MidCap 400 17.7 13.3 16.2 (1.6) (15.4) 34.0 15.2 11.3 9.0 11.3 168.6 5.1
price-to-sales screen and the typi- S&P SmallCap 600
All Exchange-Listed Stocks
(2.1) 11.5 11.0 5.7 (15.3) 37.8 21.4 6.7 14.1
5.9 35.1 (14.2) 21.2 (13.3) 81.1 22.8 4.5 17.2
8.0 138.5
7.7 278.5
5.5
6.2
cal exchange-listed stock have a *Price performance of hypothetical portfolio rescreened and rebalanced monthly using month-end
closing prices and no transaction costs.
consensus estimated annual earn- Data as of June 29, 2007.
ings growth rate of 14.6%.
The median market capi-
talization (share price times number exchange-listed stocks. Passing Companies
of shares outstanding) for the stocks The stocks currently passing the
passing the price-to-sales screen is screen have outperformed the S&P 500 Table 2 lists the 40 companies cur-
$622.1 million, above the median for by 4% over the last 52 weeks. rently passing the price-to-sales screen,
which is below the average of 46
Table 1. Price-to-Sales Screen Portfolio Characteristics observed over the last nine-and-a-
half years.
Table 2 ranks the passing com-
Price-to- Exchange-
Sales Listed panies in ascending order by their
Portfolio Characteristics (Median) Screen Stocks current price-to-sales ratios. Price-
Price-earnings ratio (X) 23.5 20.4 to-sales levels are tied to expecta-
Price-to-book-value ratio (X) 1.97 2.27 tions of future company growth,
Price-to-sales ratio (X) 1.56 2.02 profitability, and risk. The higher
EPS 5-yr. historical growth rate (%) 15.0 15.4 the expected growth, the higher
EPS 3-5 yr. estimated growth rate (%) 14.6 14.6 the price-to-sales ratio a stock can
Market cap. ($ million) 622.1 524.4 support. Higher profit margins also
Relative strength vs. S&P (%) 4 –4 translate into higher price-to-sales
ratios. Profit margins measure the
Monthly Observations level of income produced for a
Average no. of passing stocks 46 given level of sales.
Highest no. of passing stocks 82 Fresh Del Monte Produce
Lowest no. of passing stocks 18 (FDP) has the lowest price-to-sales
Monthly turnover (%) 40.1 ratio at 0.46 and the seventh-lowest
annual sales growth rate at 10.8%

August 2007 21
 AAII Stock Screens
Table 2. Companies Passing the Low Price-to-Sales Ratio Screen

Price-to-Sales Ratio 52-Wk

Firm 5-Yr Sales 12-Mo Net Rel
Firm Indus 5-Yr Grth Rate Profit Mar Strgth
TTM TTM Avg Firm Indus Firm Indus (S&P=0)
Company (Exchange: Ticker) (X) (X) (X) (%) (%) (%) (%) (%) Description
Fresh Del Monte Produce (N: FDP) 0.46 1.5 0.49 10.8 4.9 –3.5 2.6 26 prepared fruit & veg
CIBER, Inc. (N: CBR) 0.50 2.5 0.61 12.2 8.2 2.7 –5.6 3 IT consulting & servs
Spartech Corporation (N: SEH) 0.59 0.6 0.62 9.7 6.3 2.9 0.3 –3 engineered thermoplastics
NVR, Inc. (A: NVR) 0.65 0.7 0.78 18.6 12.9 8.9 2.0 20 home construct & sale
Schnitzer Steel Indus (M: SCHN) 0.71 1.1 0.99 41.9 15.3 5.8 6.9 18 metal recycler
Dot Hill Systems Corp. (M: HILL) 0.74 1.1 1.61 33.6 6.1 –35.0 1.1 –10 networked storage sys
Murphy Oil Corporation (N: MUR) 0.77 3.5 0.83 29.9 22.3 4.3 5.5 –10 oil & gas in US & UK
Airspan Networks, Inc. (M: AIRN) 0.98 1.7 1.97 27.9 4.1 –26.9 –2.4 15 broadband wireless equip
Andrew Corporation (M: ANDW) 1.04 1.7 1.15 18.1 4.1 –2.6 –2.4 36 radio frequency sys prods
Integrated Silicon Sol (M: ISSI) 1.04 2.3 2.28 7.4 6.2 0.1 4.6 –2 integrated circuits
SunOpta, Inc. (USA) (M: STKL) 1.07 1.5 1.14 33.5 4.9 1.8 2.6 –4 food; minerals; bioprocess
Tier Technologies (M: TIER) 1.09 1.3 1.78 25.4 5.1 –0.2 –6.7 46 electronic pay processing
Deswell Industries (M: DSWL) 1.16 1.3 1.75 7.4 6.6 8.3 1.6 –4 electronic & metal compon
Technitrol, Inc. (N: TNL) 1.16 1.3 1.40 15.0 6.6 5.1 1.6 4 electronic components
Stratos International (M: STLW) 1.18 2.3 2.25 9.1 6.2 1.4 4.6 –3 electronic & optical intercon
Catalyst Semiconductor (M: CATS) 1.19 2.3 1.35 9.2 6.2 –0.8 4.6 8 semicond memory prods
Wireless Telecom Gp (A: WTT) 1.27 1.3 1.96 23.1 6.6 5.9 1.6 –1 cell phone testing equip
Avici Systems Inc. (M: AVCI) 1.32 1.7 3.32 9.0 4.1 23.9 –2.4 14 Internet routing solutions
MIVA, Inc. (M: MIVA) 1.32 1.9 2.49 53.3 14.3 –52.0 –3.5 67 on-line media, advertising
Edgewater Tech (M: EDGW) 1.54 1.9 1.94 17.7 14.3 5.6 –3.5 4 tech mgmt consulting
8x8, Inc. (M: EGHT) 1.58 1.6 7.29 29.3 8.7 –26.0 –4.0 11 broadband telecom servs
Exactech, Inc. (M: EXAC) 1.76 2.8 1.97 17.1 13.5 9.6 –1.5 –2 orthopedic implants
Lannett Company (A: LCI) 1.77 7.0 5.33 39.6 14.1 4.3 –54.3 –8 generic pharmaceuticals
Aeroflex Inc. (M: ARXX) 1.80 2.3 2.35 18.9 6.2 4.9 4.6 8 integrated circuits; testing
MKS Instruments (M: MKSI) 1.88 2.3 2.45 22.2 6.2 13.0 4.6 17 semicond control solutions
Cohu, Inc. (M: COHU) 1.96 2.3 2.40 16.4 6.2 6.0 4.6 12 semicond test equip
THQ Inc. (M: THQI) 1.97 2.5 3.80 16.4 8.2 6.6 –5.6 23 software for game sys
Digimarc Corp. (M: DMRC) 2.09 2.5 2.27 47.5 8.2 –6.4 –5.6 42 secure identity solutions
Rudolph Techs (M: RTEC) 2.24 2.3 4.63 20.4 6.2 13.8 4.6 1 semicond control equip
Unit Corporation (N: UNT) 2.48 3.5 2.71 35.0 22.3 26.1 5.5 –7 onshore oil & gas drilling
King Pharmaceuticals (N: KG) 2.50 7.0 3.07 17.9 14.1 17.5 –54.3 0 pharmaceuticals
Wright Medical Group (M: WMGI) 2.51 2.8 2.80 14.4 13.5 4.4 –1.5 –5 reconstructive joints
Sciele Pharma Inc. (M: SCRX) 2.77 7.0 3.47 33.4 14.1 15.9 –54.3 –13 pharmaceuticals
Axcan Pharma USA (M: AXCA) 2.84 7.0 3.09 23.0 14.1 18.2 –54.3 28 specialty pharmaceuticals
SciClone Pharmac’ls (M: SCLN) 3.41 7.0 7.51 18.8 14.1 7.8 –54.3 –11 biopharmaceuticals
Forest Laboratories (N: FRX) 4.28 7.0 5.88 16.5 14.1 13.2 –54.3 –2 pharmaceuticals
ImmunoGen, Inc. (M: IMGN) 6.09 7.0 22.47 48.1 14.1 –55.5 –54.3 52 cancer treat therapies
Biogen Idec Inc. (M: BIIB) 6.65 7.0 9.51 58.0 14.1 2.0 –54.3 –1 disease treat therapies
Millennium Pharmac’ls (M: MLNM) 6.99 7.0 8.72 14.6 14.1 –6.3 –54.3 –11 cancer treat pharmac’ls
Pan American Silver USA (M: PAAS) 8.20 8.3 8.72 46.9 21.9 31.6 5.3 28 silver mining

Exchange Key: A= American Stock Exchange, M= NASDAQ National or NASDAQ Small Cap Market, N= New York Stock Exchange
Source: AAII’s Stock Investor Pro/Reuters Research, Inc. Data as of July 6, 2007.

over the last five years. Its price-to- the industry median growth rate of generating profits.
sales ratio is well below the industry’s 4.9%. However, the company is losing At the other end of the spectrum
median of 1.5 and its 10.8% annual money (net profit margin of -3.5%) in is a silver mining company, followed by
sales growth is significantly higher than an industry where most companies are several biotech firms. Canada-based Pan

22 AAII Journal
 What It Takes: Low Price-to-Sales Screen Criteria
• The stock does not trade on the over-the-counter exchange
• The company is not in the financial sector
• The company is not in the real estate operations industry
• The current price-to-sales ratio is less than the company’s average price-to-sales ratio for the last five years
• The company’s current price-to-sales ratio is less than the median price-to-sales ratio for its respective indus-
try
• The company’s annual compound growth rate in sales for the last five years is greater than the median annual
compound growth rate in sales for the last five years for its respective industry
• The company’s total-liabilities-to-assets ratio for the last fiscal quarter (Q1) is less than the median total-
liabilities-to-assets ratio for the last quarter (Q1) for its respective industry
• The company’s relative price strength over the last 52 weeks is greater than the 52-week median price strength
for its respective industry
• The market capitalization for the last fiscal quarter (Q1) is greater than or equal to $50 million

American Silver (PAAS) is involved in
the exploration, extraction, processing,
refining and reclamation of silver. The
median price-to-sales ratio for the gold
and silver industry is 8.3. Pan American’s
price-to-sales ratio is just below the
norm for its industry. The company has
expanded its sales from $37.3 million in
2001 to $255.4 million in 2006, a 46.9%
annual growth rate. Pan American’s
first profitable year was 2006, and over
the last four quarters the company has
earned $81.4 million on sales of $257.8
million for a net profit margin of 31.6%.
The typical gold and silver stock only
earned just over five cents for every dol-
lar of sales over the last four quarters.
These attractive company fundamentals,
aided by a 40%-plus increase in the price
of silver in 2006, helped Pan American
outperform the S&P 500 by 28% over
the last 52 weeks.
Conclusion
The low price-to-sales screen identi-
fies companies with below-average price-
to-sales ratios, sales growth that exceeds
industry norms, reasonable levels of
debt, and above-average price perfor-
mance relative to its industry. However,
you need to view the companies passing
this screen as a starting point. The stocks
passing this or any other quantitative
screen do not represent a “buy” or
“recommended” list.
Overall, it is important to perform
additional due diligence to verify the
financial strength of passing companies
and identify those stocks that match your
investing tolerances and constraints before
committing your investment dollars. 

Wayne A. Thorp, CFA, is financial analyst at AAII and editor of Computerized Investing.

August 2007 23