Investors are typically fixated on the price-to-earnings (P/E) strategy, while seeking attractively priced stocks. Simple and easy to compute, it remains the most widely used valuation metric in the investment toolkit for working out the fair market value of a stock. But despite its popularity, the P/E ratio has its limitations.

Although P/E is the most popular valuation metric, a more complicated multiple called EV-to-EBITDA works even better. Frequently viewed as a better alternative to P/E, it provides a clearer picture of a company’s valuation and earnings potential by taking a more comprehensive approach. Although P/E considers a firm’s equity portion, EV-to-EBITDA captures its total value.

Magna International Inc. (MGA Quick QuoteMGA - Free Report) , PG&E Corporation (PCG Quick QuotePCG - Free Report) , Patria Investments Limited (PAX Quick QuotePAX - Free Report) , PagSeguro Digital Ltd. (PAGS Quick QuotePAGS - Free Report) and FirstSun Capital Bancorp (FSUN Quick QuoteFSUN - Free Report) are some stocks with impressive EV-to-EBITDA ratios.

What Makes EV-to-EBITDA 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 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 16 stocks that passed the screen:

Magna International is a mobility technology company and global automotive supplier. It offers comprehensive vehicle engineering and contract manufacturing expertise. This Zacks Rank #1 stock has a Value Score of A. 

Magna International has an expected year-over-year earnings growth rate of 19% for 2026. The Zacks Consensus Estimate for MGA’s 2026 earnings has moved up 13.1% over the past 60 days.

PG&E, through its subsidiary Pacific Gas and Electric Company, engages in the business of electricity and natural gas distribution; electricity generation, procurement, and transmission; and natural gas procurement, transportation and storage. This Zacks Rank #2 company has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

PG&E has an expected year-over-year earnings growth rate of 9.3% for 2026. The consensus estimate for PCG’s 2026 earnings has been stable over the past 60 days.

Patria Investments is an alternative asset management firm focused on the mid-market segment. This Zacks Rank #2 company has a Value Score of A. 

Patria Investments has an expected year-over-year earnings growth rate of 25.2% for 2026. The Zacks Consensus Estimate for PAX's 2026 earnings has been revised 2.6% upward over the past 60 days.

PagSeguro Digital is one of the largest digital banks in Brazil, promoting innovative solutions in financial services and payment methods. This Zacks Rank #2 company has a Value Score of A. 

PagSeguro Digital has an expected year-over-year earnings growth rate of 16.2% for 2026. The Zacks Consensus Estimate for PAGS’ 2026 earnings has moved up 1.9% 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 B. 

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.