Zacks.com featured highlights Greif, G-III Apparel Group, USA Truck, SpartanNash and AdvanSix

Zacks.com featured highlights Greif, G-III Apparel Group, USA Truck, SpartanNash and AdvanSix

Zacks Equity Research
8 min read
Explore stocks on Coinbase

For Immediate Release

Chicago, IL – July 25, 2022 – Stocks in this week’s article are Greif, Inc. GEF, G-III Apparel Group, Ltd. GIII, USA Truck, Inc. USAK, SpartanNash Co. SPTN and AdvanSix Inc. ASIX.

Pick These 5 Bargain Stocks with Attractive EV-to-EBITDA Ratios

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 to work out the fair market value of a firm. But even this ubiquitously used valuation multiple has a few downsides.

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 earning 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.

Greif, Inc., G-III Apparel Group, Ltd., USA Truck, Inc., SpartanNash Co. and AdvanSix Inc. are some stocks with impressive EV-to-EBITDA ratios.

Is EV-to-EBITDA a Better Substitute to P/E?

EV-to-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.

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.

Typically, 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.

Unlike the P/E ratio, EV-to-EBITDA takes debt on a company's balance sheet into account. For this reason, it is typically used to value potential acquisition targets. The ratio shows the amount of debt that the acquirer has to bear. Stocks flaunting 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.

EV-to-EBITDA is also a useful tool in evaluating 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.

Terms and Privacy Policy
Privacy Dashboard
More Info

Recommended Stories