Yahoo Finance Zacks.com featured highlights include KB Home, American Vanguard, Navios Maritime Partners, Signet Jewelers and Portland General Electric
For Immediate Release
Chicago, IL – April 23, 2024 – Stocks in this week’s article are KB Home KBH, American Vanguard Corp. AVD, Navios Maritime Partners L.P. NMM, Signet Jewelers Ltd. SIG and Portland General Electric Co. POR.
5 Value Stocks with Exciting EV-to-EBITDA Ratios to Snap Up
The price-to-earnings (P/E) multiple enjoys wide-scale popularity among investors seeking stocks trading at a bargain. In addition to being a widely used tool for screening stocks, P/E is a popular metric for working out the fair market value of a firm. But even this ubiquitously used valuation multiple has a few limitations.
Although P/E is the most popular valuation metric, a more complicated multiple called EV-to-EBITDA works even better. Often considered a better alternative to P/E, it gives the true picture of a company's valuation and earnings potential, and has a more complete approach to valuation. While P/E considers a firm's equity portion, EV-to-EBITDA determines its total value.
KB Home, American Vanguard Corp., Navios Maritime Partners L.P., Signet Jewelers Ltd. and Portland General Electric Co. are some stocks with attractive EV-to-EBITDA ratios.
Is EV-to-EBITDA a Better Substitute to P/E?
EV-to-EBITDA is essentially 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.
EBITDA, the other component of the multiple, gives a better idea of a company's profitability as it removes the impact of non-cash expenses like depreciation and amortization that reduce 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. Due to this reason, EV-to-EBITDA is generally used to value the potential acquisition targets as it shows the amount of debt the acquirer has to assume. Stocks boasting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
Another shortcoming 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. On the other hand, EV-to-EBITDA is difficult to manipulate and can also be used to value loss-making but EBITDA-positive companies.
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. Moreover, it can be used to compare companies with different levels of debt.
However, EV-to-EBITDA is not devoid of shortcomings and alone cannot conclusively determine a stock's inherent potential and future performance. The multiple varies across industries and is usually not appropriate while comparing stocks in different industries, given their diverse capital expenditure requirements.
A strategy solely based on EV-to-EBITDA might not yield the desired results. However, 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 value stocks.
Here are our five picks out of the eight stocks that passed the screen:
KB Home is one of the largest and most recognized homebuilders in the United States. This Zacks Rank #1 stock has a Value Score of A.
The Zacks Consensus Estimate for KB Home's fiscal 2024 earnings has been revised 5.5% upward over the last 60 days. KBH's earnings beat the Zacks Consensus Estimate in each of the last four quarters at an average of roughly 26.1%.
American Vanguard is a diversified specialty and agricultural products company. This Zacks Rank #2 stock has a Value Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.
American Vanguard has an expected year-over-year earnings growth rate of 196.2% for 2024. The Zacks Consensus Estimate for AVD's 2024 earnings has been revised 8.5% upward over the past 60 days.
Navios Maritime Partners is an international owner and operator of dry cargo vessels. This Zacks Rank #2 stock has a Value Score of A.
Navios Maritime Partners has an expected earnings growth rate of 15.9% for 2024. The Zacks Consensus Estimate for NMM's 2024 earnings has been revised 21.8% upward over the past 60 days.
Signet Jewelers is the world's largest retailer of diamond jewelry. This Zacks Rank #2 stock has a Value Score of A.
Signet Jewelers has an expected earnings growth rate of 2.2% for fiscal 2025. The consensus estimate for SIG's fiscal 2025 earnings has been revised 3.6% upward over the past 60 days.
Portland General Electric is a vertically integrated electric utility that is engaged in the generation, wholesale purchase and sale, transmission, distribution and retail sale of electricity to customers in Oregon. This Zacks Rank #2 stock has a Value Score of B.
Portland General Electric has an expected earnings growth rate of 29% for 2024. The Zacks Consensus Estimate for POR's 2024 earnings has been revised 0.3% upward over the past 60 days.
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For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2258981/5-value-stocks-with-exciting-ev-to-ebitda-ratios-to-snap-up
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Signet Jewelers Limited (SIG) : Free Stock Analysis Report
Portland General Electric Company (POR) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
American Vanguard Corporation (AVD) : Free Stock Analysis Report
Navios Maritime Partners LP (NMM) : Free Stock Analysis Report
