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Tap These 5 Bargain Stocks With Impressive EV-to-EBITDA Ratio
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Key Takeaways
EV-to-EBITDA offers a fuller view of valuation by accounting for debt, unlike traditional P/E ratios.
BJRI, KT, GSL, AZZ and HPK are screened as value stocks with low EV-to-EBITDA ratios.
Each stock meets strict criteria, including valuation, trading volume, price, growth, and Value Score.
Investors are typically fixated on the price-to-earnings (P/E) strategy while seeking stocks trading at attractive prices. This straightforward, easy-to-calculate ratio is the most preferred among all 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 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.
Also referred to as enterprise multiple, 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, its debt and preferred stock minus cash and cash equivalents. In essence, it is the entire value of a company. EBITDA, the other element, gives a clearer picture of a company’s profitability by removing the impact of non-cash expenses like depreciation and amortization that dampen net earnings. It is also often used as a proxy for cash flows.
Typically, the lower the EV-to-EBITDA ratio, the more enticing it is. A low EV-to-EBITDA ratio could indicate that a stock is undervalued. Unlike the P/E ratio, EV-to-EBITDA takes debt on a company’s balance sheet into account. For this reason, it is typically used to value acquisition targets. The ratio shows the amount of debt that the acquirer has to bear. Stocks flaunting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
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. In contrast, EV-to-EBITDA is harder to manipulate and can be used to value companies that have negative net earnings but are positive on the EBITDA front. 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. It can also be used to compare companies with different levels of debt.
EV-to-EBITDA is not devoid of limitations 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.
Thus, instead of just 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 results.
Screening Criteria
Here are the parameters to screen for bargain stocks:
EV-to-EBITDA 12 Months-Most Recent less than X-Industry Median: A lower EV-to-EBITDA ratio represents a cheaper valuation.
P/E using (F1) less than X-Industry Median: This metric screens stocks that are trading at a discount to their peers.
P/B less than X-Industry Median: A lower P/B compared with the industry average implies that the stock is undervalued.
P/S less than X-Industry Median: The lower the P/S ratio, the more attractive the stock is, as investors will have to pay a smaller price for the same amount of sales generated by the company.
Estimated One-Year EPS Growth F(1)/F(0) greater than or equal to X-Industry Median: This parameter will help in screening stocks that have growth rates higher than the industry median.
Average 20-day Volume greater than or equal to 100,000: The addition of this metric ensures that shares can be traded easily.
Current Price greater than or equal to $5: This parameter will help in screening stocks that are trading at a minimum price of $5 or higher.
Zacks Rank less than or equal to 2: It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have always managed to beat adversities and outperform the market.
Value Score of less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here are our five picks out of the 15 stocks that passed the screen:
BJ's Restaurants owns and operates a chain of high-end casual dining restaurants in the United States. This Zacks Rank #1 stock has a Value Score of A.
BJ's Restaurants has an expected year-over-year earnings growth rate of 43.5% for 2025. The Zacks Consensus Estimate for BJRI’s 2025 earnings has been revised 18.5% upward over the past 60 days.
KT has an expected earnings growth rate of 300% for 2025. The consensus estimate for KT's 2025 earnings has been revised 5.3% upward over the past 60 days.
Global Ship Lease is a leading owner of containerships with a diversified fleet of mid-sized and smaller containerships. This Zacks Rank #2 stock has a Value Score of A.
The Zacks Consensus Estimate for Global Ship Lease's 2025 earnings has been revised 2.7% upward over the past 60 days. GSL beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters at an average of 13.2%.
AZZ is a global provider of metal coating services, welding solutions, specialty electrical equipment and highly engineered services. This Zacks Rank #2 stock has a Value Score of A.
AZZ has an expected year-over-year earnings growth rate of 15.6% for fiscal 2026. The company beat the consensus estimate for earnings in each of the trailing four quarters at an average of 8.1%.
HighPeak Energy is engaged in the production of oil, natural gas and NGL reserves. This Zacks Rank #2 stock has a Value Score of A.
HighPeak Energy has an expected year-over-year earnings growth rate of 23.9% for 2025. The Zacks Consensus Estimate for HPK’s 2025 earnings has been revised 53.7% 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.
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Tap These 5 Bargain Stocks With Impressive EV-to-EBITDA Ratio
Key Takeaways
Investors are typically fixated on the price-to-earnings (P/E) strategy while seeking stocks trading at attractive prices. This straightforward, easy-to-calculate ratio is the most preferred among all 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 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.
BJ's Restaurants, Inc. (BJRI - Free Report) , KT Corporation (KT - Free Report) , Global Ship Lease, Inc. (GSL - Free Report) , AZZ Inc. (AZZ - Free Report) and HighPeak Energy, Inc. (HPK - Free Report) are some stocks with attractive EV-to-EBITDA ratios.
Here’s Why EV-to-EBITDA is a Better Option
Also referred to as enterprise multiple, 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, its debt and preferred stock minus cash and cash equivalents. In essence, it is the entire value of a company. EBITDA, the other element, gives a clearer picture of a company’s profitability by removing the impact of non-cash expenses like depreciation and amortization that dampen net earnings. It is also often used as a proxy for cash flows.
Typically, the lower the EV-to-EBITDA ratio, the more enticing it is. A low EV-to-EBITDA ratio could indicate that a stock is undervalued. Unlike the P/E ratio, EV-to-EBITDA takes debt on a company’s balance sheet into account. For this reason, it is typically used to value acquisition targets. The ratio shows the amount of debt that the acquirer has to bear. Stocks flaunting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
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. In contrast, EV-to-EBITDA is harder to manipulate and can be used to value companies that have negative net earnings but are positive on the EBITDA front. 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. It can also be used to compare companies with different levels of debt.
EV-to-EBITDA is not devoid of limitations 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.
Thus, instead of just 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 results.
Screening Criteria
Here are the parameters to screen for bargain stocks:
EV-to-EBITDA 12 Months-Most Recent less than X-Industry Median: A lower EV-to-EBITDA ratio represents a cheaper valuation.
P/E using (F1) less than X-Industry Median: This metric screens stocks that are trading at a discount to their peers.
P/B less than X-Industry Median: A lower P/B compared with the industry average implies that the stock is undervalued.
P/S less than X-Industry Median: The lower the P/S ratio, the more attractive the stock is, as investors will have to pay a smaller price for the same amount of sales generated by the company.
Estimated One-Year EPS Growth F(1)/F(0) greater than or equal to X-Industry Median: This parameter will help in screening stocks that have growth rates higher than the industry median.
Average 20-day Volume greater than or equal to 100,000: The addition of this metric ensures that shares can be traded easily.
Current Price greater than or equal to $5: This parameter will help in screening stocks that are trading at a minimum price of $5 or higher.
Zacks Rank less than or equal to 2: It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have always managed to beat adversities and outperform the market.
Value Score of less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here are our five picks out of the 15 stocks that passed the screen:
BJ's Restaurants owns and operates a chain of high-end casual dining restaurants in the United States. This Zacks Rank #1 stock has a Value Score of A.
BJ's Restaurants has an expected year-over-year earnings growth rate of 43.5% for 2025. The Zacks Consensus Estimate for BJRI’s 2025 earnings has been revised 18.5% upward over the past 60 days.
KT Corporation is the biggest telecommunications operator in the Republic of Korea. 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.
KT has an expected earnings growth rate of 300% for 2025. The consensus estimate for KT's 2025 earnings has been revised 5.3% upward over the past 60 days.
Global Ship Lease is a leading owner of containerships with a diversified fleet of mid-sized and smaller containerships. This Zacks Rank #2 stock has a Value Score of A.
The Zacks Consensus Estimate for Global Ship Lease's 2025 earnings has been revised 2.7% upward over the past 60 days. GSL beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters at an average of 13.2%.
AZZ is a global provider of metal coating services, welding solutions, specialty electrical equipment and highly engineered services. This Zacks Rank #2 stock has a Value Score of A.
AZZ has an expected year-over-year earnings growth rate of 15.6% for fiscal 2026. The company beat the consensus estimate for earnings in each of the trailing four quarters at an average of 8.1%.
HighPeak Energy is engaged in the production of oil, natural gas and NGL reserves. This Zacks Rank #2 stock has a Value Score of A.
HighPeak Energy has an expected year-over-year earnings growth rate of 23.9% for 2025. The Zacks Consensus Estimate for HPK’s 2025 earnings has been revised 53.7% 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.
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.