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Zacks.com featured highlights include: G-III, Vitamin Shoppe, Tech Data and Smart & Final

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For Immediate Release

Chicago, IL – April 3, 2019 - Stocks in this week’s article are G-III Apparel Group, Ltd. (GIII - Free Report) , Vitamin Shoppe, Inc. (VSI - Free Report) , Tech Data Corp. (TECD - Free Report) , Israel Chemicals Ltd. (ICL - Free Report) and Smart & Final Stores, Inc. (SFS - Free Report) .

Pick These 5 Bargain Stocks with Enticing EV/EBITDA Ratios

The price-to-earnings (P/E) ratio is widely considered by investors as a yardstick for evaluating the fair market value of a stock. It is preferred by many investors to handpick stocks trading at attractive prices. However, even this universally used valuation multiple is not without its limitations.

Is EV/EBITDA a Better Alternative to P/E?

While P/E is hands down the most popular equity valuation ratio, there is another metric called EV/EBITDA that works even better in finding value stocks. This ratio is often viewed as a better substitute to P/E as it offers a clearer picture of a company’s valuation and earning potential. EV/EBITDA, also referred to as enterprise multiple, determines the total value of a firm while P/E considers just its equity portion.

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.

The other component, EBITDA gives the true picture of a firm’s profitability as it removes the impact of non-cash expenses like depreciation and amortization that dilute net earnings.

Typically, the lower the EV/EBITDA ratio, the more attractive it is. A low EV/EBITDA ratio could signal that a stock is potentially undervalued and vice versa.

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 downside of P/E is that it can’t be used to value a loss-making company. A company’s earnings are also subject to accounting estimates and management manipulation. EV/EBITDA, in contrast, is less amenable to manipulation and also can be used to value firms that have negative net earnings but are positive on the EBITDA side.

Moreover, EV/EBITDA allows the comparison of companies with different debt levels and is a useful tool in measuring the value of firms that are highly leveraged and have substantial depreciation and amortization expenses.

However, EV/EBITDA is also not without its shortcomings and alone cannot 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.

As such, a strategy solely based on EV/EBITDA might not yield the desired results.  But you can club it with the other major ratios in your stock investing toolbox such as price-to-book (P/B), P/E and price-to-sales (P/S) to screen bargain stocks.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/369048/pick-these-5-bargain-stocks-with-enticing-evebitda-ratios

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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Strong Stocks that Should Be in the News

Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>. 

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