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5 Value Stocks with Impressive EV-to-EBITDA Ratios to Own Now
Price-to-earnings (P/E), given its apparent simplicity, is the most commonly used metric in the value-investing world. The ratio enjoys greater popularity among valuation metrics in the investment toolkit and is preferred while uncovering stocks trading at attractive prices. However, even this universally used valuation multiple is not without its limitations.
Although 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 earnings potential. It has a more comprehensive approach to valuation.
Huntsman Corp., MarineMax, Inc., Daqo New Energy Corp., PBF Energy Inc. and Ryder System, Inc. are some stocks with impressive EV-to-EBITDA ratios.
EV/EBITDA a Better Approach - Here's Why:
EV-to-EBITDA is essentially 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, its debt and preferred stock minus cash and cash equivalents.
The other component of the multiple, EBITDA, gives a clearer picture of a company's profitability as it strips out non-cash expenses like depreciation and amortization that reduce net earnings. It is also often used as a proxy for cash flows.
Just like P/E, the lower the EV-to-EBITDA ratio, the more appealing it is. A low EV-to-EBITDA ratio signals that a stock is potentially undervalued.
EV-to-EBITDA takes into account the debt on a company's balance sheet that the P/E ratio does not. Due to this reason, EV-to-EBITDA is generally used to value the potential acquisition targets as it shows the amount of debt the acquirer has to assume. Stocks boasting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
Another shortcoming of P/E is that it can't be used to value a loss-making firm. A company'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 measuring the value of firms that are highly leveraged and have a high degree of depreciation. Moreover, it can be used to compare companies with different levels of debt.
But EV-to-EBITDA has its limitations too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa) and is usually not appropriate while comparing stocks in different industries, given their diverse capital requirements.
Therefore, instead of solely relying on EV-to-EBITDA, you can club it with the other major ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to achieve the desired outcome.
Here are our five picks out of the 13 stocks that passed the screen:
Huntsman is a leading manufacturer of differentiated and commodity chemical products. This Zacks Rank #1 stock has a Value Score of A.
Huntsman has an expected earnings growth rate of 26.8% for the current year. The Zacks Consensus Estimate for HUN's current-year earnings has been revised 11.7% upward over the past 60 days.
MarineMax has an expected year-over-year earnings growth rate of 21.5% for the current fiscal year. The Zacks Consensus Estimate for HZO's current fiscal year earnings has been revised 4.6% upward over the last 60 days.
PBF Energy provides end products that comprise heating oil, transportation fuels, lubricants and many related products. This Zacks Rank #1 stock has a Value Score of A.
PBF Energy has an expected earnings growth rate of 432.8% for the current year. The consensus estimate for PBF's current-year earnings has been revised 191.9% upward over the past 60 days.
Daqo New Energy is a leading producer of high-purity polysilicon. This Zacks Rank #1 stock has a Value Score of A.
Daqo New Energy has an expected earnings growth rate of 129.8% for the current year. The Zacks Consensus Estimate for DQ's current-year earnings has been revised 26.7% upward over the past 60 days.
Ryder System is one of the world's largest providers of integrated logistics and transportation solutions. This Zacks Rank #1 stock has a Value Score of A.
Ryder System has an expected earnings growth rate of 46% for the current year. The consensus estimate for R's current-year earnings has been revised 20% upward over the past 60 days.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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 >>.
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.
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/performancefor information about the performance numbers displayed in this press release.
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Zacks.com featured highlights include Huntsman, MarineMax, PBF Energy, Daqo New Energy and Ryder System
For Immediate Release
Chicago, IL – June 7, 2022 – Stocks in this week’s article are Huntsman Corp. (HUN - Free Report) , MarineMax, Inc. (HZO - Free Report) , Daqo New Energy Corp. (DQ - Free Report) , PBF Energy Inc. (PBF - Free Report) and Ryder System, Inc. (R - Free Report) .
5 Value Stocks with Impressive EV-to-EBITDA Ratios to Own Now
Price-to-earnings (P/E), given its apparent simplicity, is the most commonly used metric in the value-investing world. The ratio enjoys greater popularity among valuation metrics in the investment toolkit and is preferred while uncovering stocks trading at attractive prices. However, even this universally used valuation multiple is not without its limitations.
Although 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 earnings potential. It has a more comprehensive approach to valuation.
Huntsman Corp., MarineMax, Inc., Daqo New Energy Corp., PBF Energy Inc. and Ryder System, Inc. are some stocks with impressive EV-to-EBITDA ratios.
EV/EBITDA a Better Approach - Here's Why:
EV-to-EBITDA is essentially 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, its debt and preferred stock minus cash and cash equivalents.
The other component of the multiple, EBITDA, gives a clearer picture of a company's profitability as it strips out non-cash expenses like depreciation and amortization that reduce net earnings. It is also often used as a proxy for cash flows.
Just like P/E, the lower the EV-to-EBITDA ratio, the more appealing it is. A low EV-to-EBITDA ratio signals that a stock is potentially undervalued.
EV-to-EBITDA takes into account the debt on a company's balance sheet that the P/E ratio does not. Due to this reason, EV-to-EBITDA is generally used to value the potential acquisition targets as it shows the amount of debt the acquirer has to assume. Stocks boasting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
Another shortcoming of P/E is that it can't be used to value a loss-making firm. A company'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 measuring the value of firms that are highly leveraged and have a high degree of depreciation. Moreover, it can be used to compare companies with different levels of debt.
But EV-to-EBITDA has its limitations too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa) and is usually not appropriate while comparing stocks in different industries, given their diverse capital requirements.
Therefore, instead of solely relying on EV-to-EBITDA, you can club it with the other major ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to achieve the desired outcome.
Here are our five picks out of the 13 stocks that passed the screen:
Huntsman is a leading manufacturer of differentiated and commodity chemical products. This Zacks Rank #1 stock has a Value Score of A.
Huntsman has an expected earnings growth rate of 26.8% for the current year. The Zacks Consensus Estimate for HUN's current-year earnings has been revised 11.7% upward over the past 60 days.
MarineMax is a leading recreational boat and yacht retailer. This Zacks Rank #1 stock has a Value Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.
MarineMax has an expected year-over-year earnings growth rate of 21.5% for the current fiscal year. The Zacks Consensus Estimate for HZO's current fiscal year earnings has been revised 4.6% upward over the last 60 days.
PBF Energy provides end products that comprise heating oil, transportation fuels, lubricants and many related products. This Zacks Rank #1 stock has a Value Score of A.
PBF Energy has an expected earnings growth rate of 432.8% for the current year. The consensus estimate for PBF's current-year earnings has been revised 191.9% upward over the past 60 days.
Daqo New Energy is a leading producer of high-purity polysilicon. This Zacks Rank #1 stock has a Value Score of A.
Daqo New Energy has an expected earnings growth rate of 129.8% for the current year. The Zacks Consensus Estimate for DQ's current-year earnings has been revised 26.7% upward over the past 60 days.
Ryder System is one of the world's largest providers of integrated logistics and transportation solutions. This Zacks Rank #1 stock has a Value Score of A.
Ryder System has an expected earnings growth rate of 46% for the current year. The consensus estimate for R's current-year earnings has been revised 20% upward over the past 60 days.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1934765/5-value-stocks-with-impressive-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 >>.
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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
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Email: pr@zacks.com
Visit: https://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/performancefor information about the performance numbers displayed in this press release.