Investors often focus on the price-to-earnings (P/E) ratio, while looking for attractively priced stocks. Easy to compute and widely recognized, it remains one of the most commonly used valuation metrics for estimating a stock’s fair market value. However, despite its widespread use, the P/E ratio comes with certain drawbacks.

Although P/E is the most popular valuation metric, a more complicated multiple called EV-to-EBITDA is often considered a more effective alternative. 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.

First American Financial Corporation (FAF Quick QuoteFAF - Free Report) , Caleres, Inc. (CAL Quick QuoteCAL - Free Report) , Cenovus Energy Inc. (CVE Quick QuoteCVE - Free Report) , Ultrapar Participacoes S.A. (UGP Quick QuoteUGP - Free Report) and Open Text Corporation (OTEX Quick QuoteOTEX - Free Report) are some stocks with attractive 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 18 stocks that passed the screen:

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 #1 stock has a Value Score of A. 

First American Financial has an expected earnings growth rate of 12.6% for 2026. The Zacks Consensus Estimate for FAF’s 2026 earnings has been revised 6.7% upward over the past 60 days.

Caleres designs, develops, sources, manufactures and distributes footwear in the United States, Canada, East Asia and internationally. 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.

Caleres has an expected year-over-year earnings growth rate of 31.9% for the current fiscal year. The consensus estimate for CAL’s current fiscal-year earnings has moved up 4.7% over the past 60 days.

Cenovus Energy is a leading integrated energy firm with operations comprising marketing the produced oil, natural gas and natural gas liquids. This Zacks Rank #1 stock has a Value Score of B. 

Cenovus Energy has an expected year-over-year earnings growth rate of 104.6% for 2026. The Zacks Consensus Estimate for CVE’s 2026 earnings has moved up 83.1% over the past 60 days.

Ultrapar Participacoes is one of the largest distributors of liquefied petroleum gas in Brazil and a leading producer of petrochemicals and chemicals. This Zacks Rank #2 company has a Value Score of A. 

Ultrapar Participacoes has an expected year-over-year earnings growth rate of 100% for 2026. The Zacks Consensus Estimate for UGP's 2026 earnings has been revised 45% upward over the past 60 days.

OpenText is a leading information management company that provides software and services that empower digital businesses of all sizes. This Zacks Rank #2 company has a Value Score of A. 

OpenText has an expected year-over-year earnings growth rate of 12% for the current fiscal year. The Zacks Consensus Estimate for OTEX’s current fiscal-year earnings has moved up 1.7% over the past 60 days.