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Zacks.com highlights: Big 5 Sporting Goods, ArcBest, Boise Cascade, Rayonier Advanced Materials and UGI

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For Immediate Release

Chicago, IL – June 28, 2018 - Stocks in this week’s article include: Big 5 Sporting Goods Corp. (BGFV - Free Report) , ArcBest Corp. (ARCB - Free Report) , Boise Cascade Company (BCC - Free Report) , Rayonier Advanced Materials Inc. (RYAM - Free Report) and UGI Corp. (UGI - Free Report) .

Screen of the Week of Zacks Investment Research:

Tap 5 Value Stocks Sporting Impressive EV/EBITDA Ratios

Price-to-earnings (P/E), due to its apparent simplicity, is preferred by many investors while picking stocks trading at attractive prices. A widely favored approach by value investors is to chase for stocks that have a low P/E ratio. However, even this simple, easy-to-calculate multiple has a few pitfalls.

Why EV/EBITDA is a Better Approach?

Although P/E is preferred by many investors while uncovering bargain stocks, another valuation metric called EV/EBITDA does a better job. The ratio is sometimes viewed as a better alternative as it offers a clearer picture of a firm’s valuation and its earnings potential.

EV/EBITDA, also known as the enterprise multiple, 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 constituent, gives the true picture of a company’s profitability as it removes the impact of non-cash expenses like depreciation and amortization that depress net earnings. It is also often used as a proxy for cash flows.

Typically, the lower the EV/EBITDA ratio, the more enticing it is. A low EV/EBITDA ratio could be a sign that a stock is undervalued.

However, unlike P/E ratio, EV/EBITDA takes into account the debt on a company’s balance sheet. For this reason, EV/EBITDA is usually used to value possible acquisition targets. Stocks with a low EV/EBITDA multiple could be seen as potential takeover candidates.

Another major drawback of P/E is that it can’t be used to value a loss-making firm. Moreover, a company’s earnings are also subject to accounting estimates and management manipulation. On the other hand, EV/EBITDA is harder to manipulate and can also be used to value companies that have negative net earnings but are positive on the EBITDA front.

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

Then again, EV/EBITDA has its shortcomings too. It varies across industries (a high-growth industry normally has higher multiple and vice versa) and is generally not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

As such, a strategy only based on EV/EBITDA might not yield the desired outcome. But you can combine it with other major ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to screen value stocks.

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/309334/tap-5-value-stocks-sporting-impressive-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.

About Screen of the Week

Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine.  But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.

Strong Stocks that Should Be in the News

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Contact: Jim Giaquinto

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