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 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. Although P/E considers a firm’s equity portion, EV-to-EBITDA determines its total value.
  
Industrial Logistics Properties Trust (ILPT Quick QuoteILPT - Free Report) , Plains GP Holdings, L.P. (PAGP Quick QuotePAGP - Free Report) , ASGN Incorporated (ASGN Quick QuoteASGN - Free Report) , California Water Service Group (CWT Quick QuoteCWT - Free Report) and Dollar Tree, Inc. (DLTR Quick QuoteDLTR - Free Report) are some stocks with impressive 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 when 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 50,000: 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 12 stocks that passed the screen:

Industrial Logistics Properties Trust is focused on owning and leasing high-quality industrial and logistics properties across the United States. This Zacks Rank #1 stock has a Value Score of A. 

Industrial Logistics Properties Trust has an expected year-over-year earnings growth rate of 20% for 2026. The Zacks Consensus Estimate for ILPT's 2026 earnings has been revised 10.8% upward over the past 60 days.

Plains GP Holdings, through its subsidiaries, is involved in the transportation, storage, terminalling and marketing of crude oil and refined products. 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.

Plains GP Holdings has an expected year-over-year earnings growth rate of 27% for 2026. The Zacks Consensus Estimate for PAGP's 2026 earnings has been revised 19.7% upward over the past 60 days.

ASGN is a leading provider of IT services and solutions across the commercial and government sectors. This Zacks Rank #2 stock has a Value Score of A. 

ASGN has an expected year-over-year earnings growth rate of 10.1% for 2026. The consensus estimate for ASGN’s 2026 earnings has moved up 0.4% over over the past 60 days.

California Water Service Group is one of the largest investor-owned water utilities in the United States, providing water and related utility services. This Zacks Rank #2 stock has a Value Score of B. 

California Water Service Group has an expected year-over-year earnings growth rate of 8.3% for 2026. The Zacks Consensus Estimate for CWT's 2026 earnings has been stable over the past 60 days.

Dollar Tree is an operator of discount variety stores offering merchandise and other assortments. This Zacks Rank #2 stock has a Value Score of B. 

Dollar Tree has an expected year-over-year earnings growth rate of 12.4% for the current fiscal year. The consensus estimate for DLTR’s current fiscal-year earnings has moved up 3.8% over over the past 60 days.