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5 Value Stocks with Impressive EV-to-EBITDA Ratios to Snap Up
The price-to-earnings (P/E) multiple enjoys wide-scale popularity among investors seeking stocks trading at a bargain. In addition to being a widely used tool for screening stocks, P/E is a popular metric for working out the fair market value of a firm. But even this ubiquitously used valuation multiple has a few limitations.
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.
JAKKS Pacific, Inc., JinkoSolar Holding Co., Ltd., Centene Corp., ADT Inc. and Centerspace are some stocks with attractive EV-to-EBITDA ratios.
Is EV-to-EBITDA a Better Substitute to P/E?
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.
EBITDA, the other component of the multiple, 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.
Just like P/E, 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 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 but EBITDA-positive companies.
EV-to-EBITDA is also a yardstick 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.
However, EV-to-EBITDA is not devoid of shortcomings and alone cannot conclusively determine a stock's inherent potential and future performance. The multiple varies across industries and is usually not appropriate while comparing stocks in different industries, given their diverse capital expenditure requirements.
A strategy solely based on EV-to-EBITDA might not yield the desired results. However, 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 eight stocks that passed the screen:
JAKKS Pacific is a leading designer, manufacturer and marketer of toys and consumer products sold globally. This Zacks Rank #1 stock has a Value Score of A.
JAKKS Pacific has an expected earnings growth rate of 20.8% for the current year. The Zacks Consensus Estimate for JAKK's current-year earnings has been revised 37.9% upward over the past 60 days.
JinkoSolar is one of the leading solar module manufacturers, which distributes its solar products to a diversified international utility, commercial and residential customer base globally. 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.
JinkoSolar has an expected year-over-year earnings growth rate of 108.6% for the current year. JKS' earnings beat the Zacks Consensus Estimate in each of the last four quarters at an average of 102.7%.
Centene is a well-diversified healthcare company that primarily provides a set of services to government-sponsored healthcare programs. This Zacks Rank #2 stock has a Value Score of A.
Centene has an expected year-over-year earnings growth rate of 15.2% for the current year. The consensus estimate for CNC's current-year earnings has been revised 3.2% upward over the last 60 days.
ADT provides security and automation solutions for homes and businesses, primarily in the United States and Canada. This Zacks Rank #2 stock has a Value Score of A.
ADT has an expected year-over-year earnings growth rate of 58.3% for the current year. The Zacks Consensus Estimate for ADT's current fiscal-year earnings has been revised 5.5% upward over the last 60 days.
Centerspace is a real estate development company focused on the ownership and management of apartment communities. This Zacks Rank #2 stock has a Value Score of B.
Centerspace has an expected year-over-year earnings growth rate of 5.2% for the current year. The Zacks Consensus Estimate for CSR's current-year earnings has been revised 4.5% upward over the last 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.
See More Zacks Research for These Tickers
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Zacks.com featured highlights include JAKKS Pacific, JinkoSolar Holding, Centene, ADT and Centerspace
For Immediate Release
Chicago, IL – December 13, 2023 – Stocks in this week’s article are JAKKS Pacific, Inc. (JAKK - Free Report) , JinkoSolar Holding Co., Ltd. (JKS - Free Report) , Centene Corp. (CNC - Free Report) , ADT Inc. (ADT - Free Report) and Centerspace (CSR - Free Report) .
5 Value Stocks with Impressive EV-to-EBITDA Ratios to Snap Up
The price-to-earnings (P/E) multiple enjoys wide-scale popularity among investors seeking stocks trading at a bargain. In addition to being a widely used tool for screening stocks, P/E is a popular metric for working out the fair market value of a firm. But even this ubiquitously used valuation multiple has a few limitations.
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.
JAKKS Pacific, Inc., JinkoSolar Holding Co., Ltd., Centene Corp., ADT Inc. and Centerspace are some stocks with attractive EV-to-EBITDA ratios.
Is EV-to-EBITDA a Better Substitute to P/E?
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.
EBITDA, the other component of the multiple, 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.
Just like P/E, 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 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 but EBITDA-positive companies.
EV-to-EBITDA is also a yardstick 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.
However, EV-to-EBITDA is not devoid of shortcomings and alone cannot conclusively determine a stock's inherent potential and future performance. The multiple varies across industries and is usually not appropriate while comparing stocks in different industries, given their diverse capital expenditure requirements.
A strategy solely based on EV-to-EBITDA might not yield the desired results. However, 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 eight stocks that passed the screen:
JAKKS Pacific is a leading designer, manufacturer and marketer of toys and consumer products sold globally. This Zacks Rank #1 stock has a Value Score of A.
JAKKS Pacific has an expected earnings growth rate of 20.8% for the current year. The Zacks Consensus Estimate for JAKK's current-year earnings has been revised 37.9% upward over the past 60 days.
JinkoSolar is one of the leading solar module manufacturers, which distributes its solar products to a diversified international utility, commercial and residential customer base globally. 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.
JinkoSolar has an expected year-over-year earnings growth rate of 108.6% for the current year. JKS' earnings beat the Zacks Consensus Estimate in each of the last four quarters at an average of 102.7%.
Centene is a well-diversified healthcare company that primarily provides a set of services to government-sponsored healthcare programs. This Zacks Rank #2 stock has a Value Score of A.
Centene has an expected year-over-year earnings growth rate of 15.2% for the current year. The consensus estimate for CNC's current-year earnings has been revised 3.2% upward over the last 60 days.
ADT provides security and automation solutions for homes and businesses, primarily in the United States and Canada. This Zacks Rank #2 stock has a Value Score of A.
ADT has an expected year-over-year earnings growth rate of 58.3% for the current year. The Zacks Consensus Estimate for ADT's current fiscal-year earnings has been revised 5.5% upward over the last 60 days.
Centerspace is a real estate development company focused on the ownership and management of apartment communities. This Zacks Rank #2 stock has a Value Score of B.
Centerspace has an expected year-over-year earnings growth rate of 5.2% for the current year. The Zacks Consensus Estimate for CSR's current-year earnings has been revised 4.5% upward over the last 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/2196525/5-value-stocks-with-impressive-ev-to-ebitda-ratios-to-snap-up
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
Phone: 312-265-9268
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.