For Immediate Release
Chicago, IL – September 12, 2022 – Stocks in this week’s article are PBF Energy Inc. PBF, ArcBest Corporation ARCB, Ryder System, Inc. R, UFP Industries, Inc. UFPI and EchoStar Corp. SATS.
5 Value Stocks with Exciting EV-to-EBITDA Ratios to Own Now
Price-to-earnings (P/E), given its apparent simplicity, is the most commonly used metric in the value-investing world. The ratio enjoys greater popularity among valuation metrics in the investment toolkit and is preferred while uncovering stocks trading at attractive prices. But even this universally used valuation multiple is not without its limitations.
While P/E enjoys huge 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 gives the true picture of a company’s valuation and earnings potential. It has a more comprehensive approach to valuation.
PBF Energy Inc., ArcBest Corporation, Ryder System, Inc., UFP Industries, Inc. and EchoStar Corp. are some stocks with impressive EV-to-EBITDA ratios.
What Makes EV-to-EBITDA a Better Option?
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.
The other component of the multiple, EBITDA, 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.
Usually, 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.
Moreover, 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 yardstick for 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.
But EV-to-EBITDA has its limitations too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa) and is usually not appropriate while comparing stocks in different industries, given their diverse capital requirements.
Therefore, instead of solely 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 outcome.
Here are our five picks out of the 18 stocks that passed the screen:
PBF Energy provides end products that comprise heating oil, transportation fuels, lubricants and many related products. This Zacks Rank #1 stock has a Value Score of A.
PBF Energy has an expected earnings growth rate of 872.4% for the current year. The Zacks Consensus Estimate for PBF's current-year earnings has been revised 91.9% upward over the past 60 days.
ArcBest provides freight transportation services and solutions. 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.
ArcBest has an expected earnings growth rate of 68.4% for the current year. The consensus estimate for ARCB's current-year earnings has been revised 6.1% upward over the past 60 days.
Ryder System is one of the world's largest providers of integrated logistics and transportation solutions. This Zacks Rank #2 stock has a Value Score of A.
Ryder System has an expected earnings growth rate of 56.3% for the current year. The Zacks Consensus Estimate for R’s current-year earnings has been revised 3.4% upward over the past 60 days.
UFP Industries supplies wood, wood composite and other products in retail, industrial and construction markets. This Zacks Rank #2 stock has a Value Score of A.
UFP Industries has an expected earnings growth rate of 23.2% for the current year. The consensus estimate for UFPI's current-year earnings has been revised 14% upward over the past 60 days.
EchoStar is a leading global provider of satellite communication solutions. This Zacks Rank #2 stock has a Value Score of A.
EchoStar has an expected earnings growth rate of 171.8% for the current year. The Zacks Consensus Estimate for SATS's current-year earnings has been revised 2.1% 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/1978543/5-value-stocks-with-exciting-ev-to-ebitda-ratios-to-own-now
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UFP Industries, Inc. (UFPI) : Free Stock Analysis Report
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EchoStar Corporation (SATS) : Free Stock Analysis Report
PBF Energy Inc. (PBF) : Free Stock Analysis Report
ArcBest Corporation (ARCB) : Free Stock Analysis Report
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