The price-to-earnings (P/E) multiple enjoys widespread 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. However, even this straightforward, broadly used valuation metric has a few shortcomings.

While 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.  

Eni S.p.A. (E Quick QuoteE - Free Report) , Sanmina Corporation (SANM Quick QuoteSANM - Free Report) , FirstSun Capital Bancorp (FSUN Quick QuoteFSUN - Free Report) , First American Financial Corporation (FAF Quick QuoteFAF - Free Report) and AXIS Capital Holdings Limited (AXS Quick QuoteAXS - Free Report) are some stocks with impressive 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. For 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 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 shortcomings, too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa). It is usually not appropriate when comparing stocks in different industries, given their diverse capital 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.

Screening Criteria

Here are the parameters to screen for value 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 18 stocks that passed the screen:

Eni is among the leading integrated energy players in the world. This Zacks Rank #1 stock has a Value Score of A. 

Eni has an expected year-over-year earnings growth rate of 10.3% for 2026. The Zacks Consensus Estimate for E’s 2026 earnings has moved up 13.2% over the past 60 days.

Sanmina is a global provider of electronics contract manufacturing services. This Zacks Rank #1 stock has a Value Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sanmina has an expected earnings growth rate of 66.5% for fiscal 2026. The consensus estimate for SANM’s fiscal 2026 earnings has been revised 4.4% upward over the past 60 days.

FirstSun Capital Bancorp is the financial holding company for Sunflower Bank, N.A., which operates as Sunflower Bank. This Zacks Rank #2 stock has a Value Score of A. 

FirstSun Capital has an expected year-over-year earnings growth rate of 13.8% for 2026. The Zacks Consensus Estimate for FSUN's 2026 earnings has been revised 9.8% upward over the past 60 days.

First American Financial serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs. This Zacks Rank #2 stock has a Value Score of A. 

First American Financial has an expected earnings growth rate of 5% for 2026. The Zacks Consensus Estimate for FAF’s 2026 earnings has been revised 2.9% upward over the past 60 days.

AXIS Capital provides a broad range of specialty insurance and reinsurance solutions to its clients on a worldwide basis. This Zacks Rank #2 stock has a Value Score of B. 

AXIS Capital has an expected year-over-year earnings growth rate of 2.5% for 2026. The consensus estimate for AXS’s 2026 earnings has moved up 4.7% over the past 60 days.