Zacks.com featured highlights PagSeguro Digital, American Vanguard, Designer Brands, Navios Maritime and Empire State Realty

Zacks.com featured highlights PagSeguro Digital, American Vanguard, Designer Brands, Navios Maritime and Empire State Realty

Zacks Equity Research
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For Immediate Release

Chicago, IL – March 20, 2024 – Stocks in this week’s article are PagSeguro Digital Ltd. PAGS, American Vanguard Corp. AVD, Designer Brands Inc. DBI, Navios Maritime Partners L.P. NMM and Empire State Realty Trust, Inc. ESRT.

5 Value Stocks with Enticing EV-to-EBITDA Ratios to Own Now

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

PagSeguro Digital Ltd., American Vanguard Corp., Designer Brands Inc., Navios Maritime Partners L.P. and Empire State Realty Trust, Inc. are some stocks with impressive 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 companies making losses but are EBITDA-positive.

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