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Zacks.com highlights: SUPERVALU, Unum Group, Covenant Transportation Group, Darling Ingredients and Comfort Systems USA

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For Immediate Release

Chicago, IL – April 26, 2018 - Stocks in this week’s article include: SUPERVALU Inc. , Unum Group (UNM - Free Report) , Covenant Transportation Group, Inc. , Darling Ingredients Inc. (DAR - Free Report) and Comfort Systems USA, Inc. (FIX - Free Report) .

Screen of the Week of Zacks Investment Research:

Pick These 5 Bargain Stocks with Alluring EV/EBITDA Ratios

Value investors typically tend to get fixated on the price-to-earnings (P/E) strategy while looking for stocks that are trading at a bargain. P/E, without a shadow of a doubt, is the most popular multiple used by investors for assessing the fair market value of a stock. But even this widely popular valuation metric suffers a few drawbacks.

Why EV/EBITDA is a Better Substitute to P/E?

While the popularity of P/E stems from its simplicity, another valuation metric called EV/EBITDA is often viewed as a better option as it offers a clearer picture of a company’s valuation and earnings potential.

While EV/EBITDA is a more complicated metric, it is also more comprehensive than P/E in stock evaluation. EV/EBITDA determines the total value of a company, while P/E solely considers its equity portion.

Also referred to as the enterprise multiple, EV/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. Simply put, it is the total value of a firm.

EBITDA, the other component of the ratio, is a true reflection of a company’s profitability as it eliminates non-cash expenses like depreciation and amortization that depress net earnings. It is also often used as a proxy for cash flows.

Just like P/E, the lower the EV/EBITDA ratio, the better it is. A low EV/EBITDA ratio could be a sign that a stock is potentially undervalued.

EV/EBITDA takes debt on a company’s balance sheet into account that P/E does not. Due to this reason, EV/EBITDA is typically used to value possible acquisition targets, as it shows the amount of debt the acquirer has to assume. Companies with a low EV/EBITDA multiple could be seen as attractive takeover candidates.

Another key drawback 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. In comparison, EV/EBITDA is less amenable to manipulation and can also be used to value firms that have negative net earnings but are positive on the EBITDA front.

EV/EBITDA is also a useful tool in measuring the value of companies that are highly leveraged and have a high degree of depreciation. Moreover, the ratio allows the comparison of companies with different debt levels.

However, EV/EBITDA is also not without its downsides and alone can’t conclusively determine a stock’s inherent potential and future performance. The ratio varies across industries and is generally not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

Thus, instead of solely relying on EV/EBITDA, you can club it with the other key ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to achieve the desired outcome.

And that's what we're screening for today…

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/300566/pick-these-5-bargain-stocks-with-alluring-evebitda-ratios

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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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