Back to top

Image: Bigstock

Zacks.com featured highlights include: Korea Electric Power, Kelly Services, TRI Pointe, ManpowerGroup and Global Net Lease

Read MoreHide Full Article

For Immediate Release

Chicago, IL – January 06, 2021 – Stocks in this week’s article are Korea Electric Power Corporation (KEP - Free Report) , Kelly Services, Inc. KELYA, TRI Pointe Group, Inc. (TPH - Free Report) , ManpowerGroup Inc. MAN and Global Net Lease, Inc. (GNL - Free Report) .

5 Value Stocks with Attractive EV-to-EBITDA Ratios to Own Now

 

Investors generally have a fixation on the price-to-earnings (P/E) multiple while seeking stocks that are trading at attractive prices. A widely favored approach by value investors is to chase stocks that have a low P/E ratio. But even this widely popular valuation metric is not without its pitfalls.

Why is EV-to-EBITDA a Better Alternative?

While P/E enjoys great popularity among value investors, a less-used and more-complicated metric called EV-to-EBITDA is sometimes viewed as a better alternative. EV-to-EBITDA gives the true picture of a company's valuation and earning potential. It has a more comprehensive approach to valuation.  

EV-to-EBITDA is the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). EV is the sum of a company's market capitalization, debt and preferred stock minus cash and cash equivalents.

EBITDA, the other component of the multiple, gives a clearer picture of a company's profitability as it removes the impact of non-cash expenses like depreciation and amortization that depress net earnings. It is also often used as a proxy for cash flows.

Usually, the lower the EV-to-EBITDA ratio, the more attractive it is. A low EV-to-EBITDA ratio could signal that a stock is potentially undervalued.

EV-to-EBITDA takes into account the debt on a company's balance sheet that P/E ratio does not. Given this reason, EV-to-EBITDA is usually used to value possible acquisition targets. Stocks with a low EV-to-EBITDA multiple could be seen as potential takeover candidates.

Moreover, P/E can't be used to value a loss-making firm. A firm's earnings are also subject to accounting estimates and management manipulation. On the other hand, EV-to-EBITDA is difficult to manipulate and can also be used to value companies that are making loss but are EBITDA-positive.

EV-to-EBITDA is also a useful tool in assessing the value of firms that are highly leveraged and have a high degree of depreciation. It can also be used to compare companies with different levels of debt.

Then again, EV-to-EBITDA has its flaws. It varies across industries (a high-growth industry normally has higher multiple and vice versa) and is typically not appropriate while comparing stocks in different industries given their diverse capital expenditure requirements.

As such, a strategy solely based on EV-to-EBITDA might not yield the desired results.  But you can club it with the other major ratios in your stock investing toolbox such as price-to-book (P/B), P/E and price-to-sales (P/S) to screen value stocks.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1240957/5-value-stocks-with-attractive-ev-to-ebitda-ratios-to-own-now

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

About Screen of the Week

Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine.  But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.

Strong Stocks that Should Be in the News

Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.

Follow us on Twitter:  https://twitter.com/zacksresearch

 

Join us on Facebook:  https://www.facebook.com/ZacksInvestmentResearch

 

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

 

Contact: Jim Giaquinto

Company: Zacks.com

Phone: 312-265-9268

Email: pr@zacks.com

Visit: www.Zacks.com

 

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

 

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Korea Electric Power Corporation (KEP) - free report >>

TRI Pointe Group, Inc. (TPH) - free report >>

Global Net Lease, Inc. (GNL) - free report >>

Published in