For Immediate Release
Chicago, IL – November 10, 2023 – Stocks in this week’s article are G-III Apparel Group, Ltd. (
GIII Quick Quote GIII - Free Report) , Titan Machinery Inc. ( TITN Quick Quote TITN - Free Report) , SM Energy Co. ( SM Quick Quote SM - Free Report) , Centene Corp. ( CNC Quick Quote CNC - Free Report) and AAR Corp. ( AIR Quick Quote AIR - Free Report) . 5 Value Stocks with Exciting EV-to-EBITDA Ratios to Own Now
Investors typically have a fixation on the price-to-earnings (P/E) strategy while seeking stocks trading at attractive prices. This straightforward, easy-to-calculate ratio is most preferred among all the valuation metrics in the investment toolkit for working out the fair market value of a stock. But even this ubiquitously used valuation metric is not without its pitfalls.
Although P/E is the most popular valuation metric, a more complicated multiple called EV-to-EBITDA works even better. Often considered a better alternative to P/E, it gives the true picture of a company’s valuation and earnings potential, and has a more complete approach to valuation. While P/E considers a firm’s equity portion, EV-to-EBITDA determines its total value.
G-III Apparel Group, Ltd., Titan Machinery Inc., SM Energy Co., Centene Corp. and AAR Corp. are some stocks with attractive EV-to-EBITDA ratios. What Makes EV-to-EBITDA a Better Alternative?
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 better idea of a company’s profitability as it removes the impact of non-cash expenses like depreciation and amortization that reduce net earnings. It is also often used as a proxy for cash flows.
Usually, the lower the EV-to-EBITDA ratio, the more appealing it is. A low EV-to-EBITDA ratio could indicate 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 loss-making companies that are EBITDA positive.
EV-to-EBITDA is also a useful yardstick in evaluating 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, 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.
Here are our five picks out of the 13 stocks that passed the screen:
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. This Zacks Rank #1 stock has a Value Score of A.
G-III Apparel has an expected year-over-year earnings growth rate of 14.7% for the current fiscal year. The Zacks Consensus Estimate for GIII’s current fiscal-year earnings has been revised 2.8% upward over the last 60 days.
Titan Machinery operates a network of full-service agricultural and construction equipment dealer locations in North America and Europe. This Zacks Rank #2 stock has a Value Score of A. You can see . the complete list of today’s Zacks #1 Rank stocks here
Titan Machinery has an expected year-over-year earnings growth rate of 11.9% for the current fiscal year. TITN’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 18.5%, on average.
SM Energy is an independent oil and gas company engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America. This Zacks Rank #2 stock has a Value Score of A.
The consensus estimate for SM Energy’s current-year earnings has been revised 7.8% upward over the last 60 days. SM’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 14.6%, on average.
Centene is a well-diversified healthcare company that primarily provides a set of services to government-sponsored healthcare programs. It serves the under-insured and uninsured individuals through member-focused services. This Zacks Rank #2 stock has a Value Score of A.
Centene has an expected year-over-year earnings growth rate of 14.7% for the current year. The Zacks Consensus Estimate for CNC’s current-year earnings has been revised 2.5% upward over the last 60 days.
AAR provides various products and services to the aviation and defense industries worldwide. AIR, a Zacks Rank #2 stock, has a Value Score of B.
AAR has an expected year-over-year earnings growth rate of 21.3% for the current fiscal year. The consensus estimate for AIR’s current fiscal-year earnings has been revised 0.3% upward over the last 60 days.
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. 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/2181416/5-value-stocks-with-exciting-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. Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance . Why Haven’t You Looked at Zacks' Top Stocks?
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