American Airlines Group - Second quarter earnings overview (Part 11 of 11)
The commonly used valuation multiple to analyze if the company stock is undervalued or overvalued is EV/EBITDA. This multiple is based on the Enterprise value (EV) which is defined as the theoretical takeover price and is calculated as Market capitalization plus net debt and minority interest. EV/EBITDA therefore represents the price paid per dollar of EBITDA. A lower than industry average EV/EBITDA multiple implies that the company is undervalued. The advantage of this multiple over the Price to earnings multiple, another widely used valuation metric is that is it neutral to capital structure. Hence it makes it possible to compare companies with different levels of debt.
Browse this series on Market Realist:
- Part 1 - Overview: American Airlines Group’s second quarter earnings
- Part 2 - Must-know: Major integration and network developments post-merger with U.S. Airways
- Part 3 - America Airlines’ operational performance in 2Q14:
- Airline Industry
- American Airlines