Price-to-earnings (P/E) is hands down the most commonly used metric in the value investing world. This straightforward, easy-to-calculate ratio enjoys greater popularity among valuation metrics in the investment toolkit and is preferred for identifying bargain stocks. A widely favored approach by value investors is to chase stocks with a low P/E ratio. But even this ubiquitously used valuation multiple has a few downsides.

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 provides a clearer view of a company’s valuation and earnings-generating potential by taking a broader approach to assessing value.  

Ultrapar Participacoes S.A. (UGP Quick QuoteUGP - Free Report) , Chatham Lodging Trust (CLDT Quick QuoteCLDT - Free Report) , Arcos Dorados Holdings Inc. (ARCO Quick QuoteARCO - Free Report) , Occidental Petroleum Corporation (OXY Quick QuoteOXY - Free Report) and Kohl's Corporation (KSS Quick QuoteKSS - Free Report) are some stocks with impressive EV-to-EBITDA ratios.

Why EV-to-EBITDA is a Better Alternative?

Also dubbed as the 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 represents a company's total value. EBITDA, the other element, gives a clearer picture of a company’s profitability by removing the impact of non-cash expenses such as depreciation and amortization that dampen 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 potential acquisition targets as it shows the amount of debt the acquirer has to assume. Stocks with 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.

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.

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 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 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 18 stocks that passed the screen:

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 #1 company has a Value Score of A. 

Ultrapar Participacoes has an expected year-over-year earnings growth rate of 189.7% for 2026. The Zacks Consensus Estimate for UGP's 2026 earnings has been revised 7.7% upward over the past 60 days.

Chatham Lodging Trust is a lodging real estate investment trust that invests in premium-branded upscale extended-stay and select-service hotels. 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.

Chatham Lodging Trust has an expected year-over-year earnings growth rate of 32.4% for 2026. The consensus estimate for CLDT’s 2026 earnings has moved up 1.5% over the past 60 days.

Arcos Dorados Holdings operates as a franchisee of McDonald's. It operates the largest quick-service restaurant chain in Latin America and the Caribbean. This Zacks Rank #2 company has a Value Score of A. 

Arcos Dorados Holdings has an expected year-over-year earnings growth rate of 207.7% for 2026. The Zacks Consensus Estimate for ARCO’s 2026 earnings has been revised 3.9% upward over the past 60 days.

Occidental Petroleum is an integrated oil and gas company with significant exploration and production exposure. This Zacks Rank #2 company has a Value Score of A. 

Occidental Petroleum has an expected year-over-year earnings growth rate of 190.9% for 2026. The consensus estimate for OXY's 2026 earnings has been revised 5.6% upward over the past 60 days.

Kohl’s is a U.S.-based department store retailer, offering moderately priced apparel, footwear and accessories for women, men and children, along with beauty and home products. This Zacks Rank #2 company has a Value Score of A. 

Kohl’s has an expected year-over-year earnings growth rate of 29.6% for the current fiscal year. The Zacks Consensus Estimate for KSS’ current fiscal-year earnings has been revised 52.2% higher over the past 60 days.