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Zacks.com featured highlights include: Amkor Technology, Innoviva, United States Cellular Corp, Old Republic International Corp and Regal Beloit

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Zacks Equity Research
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For Immediate Release

Chicago, IL – December 3, 2020 – Stocks in this week’s article are Amkor Technology, Inc. AMKR, Innoviva, Inc. INVA, United States Cellular Corp. USM, Old Republic International Corp. ORI and Regal Beloit Corp. RBC.

5 Value Stocks with Impressive EV-to-EBITDA Ratios to Scoop Up

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

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

While P/E is by far the most-popular valuation metric, a more-complicated metric called EV-to-EBITDA does a better job in working out the fair market value of a firm. Often viewed as a better substitute to P/E, this ratio offers a clearer picture of a company’s valuation and its earnings potential.

Also dubbed as the enterprise multiple, 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, debt and preferred stock minus cash and cash equivalents.

EBITDA, the other constituent, is a true reflection of a company’s profitability as it eliminates the impact of non-cash expenses like depreciation and amortization that depress net earnings. It is also often used as a proxy for cash flows.

Generally, the lower the EV-to-EBITDA ratio, the more enticing it is. A low EV-to-EBITDA ratio signals that a stock is potentially undervalued.  

EV-to-EBITDA takes into account the debt on a company’s balance sheet that P/E ratio does not. Due to this reason, EV-to-EBITDA is generally used to value 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.

Also, P/E can’t be used to value a loss-making firm. A company’s earnings are also subject to accounting estimates and management manipulation. Meanwhile, EV-to-EBITDA is less open to manipulation and can also be used to value companies that are loss-incurring but EBITDA-positive.

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. It also allows the comparison of companies with different debt levels.

However, EV-to-EBITDA is also not without its shortcomings and alone cannot conclusively determine a stock’s inherent potential and future performance. The ratio varies across industries and is generally not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

As such, a strategy solely based on EV-to-EBITDA might not yield the desired results.  But 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.

For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/1122698/5-value-stocks-with-impressive-evtoebitda-ratios-to-scoop-up

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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Regal Beloit Corporation (RBC) : Free Stock Analysis Report
 
United States Cellular Corporation (USM) : Free Stock Analysis Report
 
Amkor Technology, Inc. (AMKR) : Free Stock Analysis Report
 
Old Republic International Corporation (ORI) : Free Stock Analysis Report
 
Innoviva, Inc. (INVA) : Free Stock Analysis Report
 
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