Zacks.com featured highlights Boise Cascade, AZZ, Hewlett Packard, JinkoSolar and PVH
For Immediate Release
Chicago, IL – October 26, 2023 – Stocks in this week’s article are Boise Cascade Co. BCC, AZZ Inc. AZZ, Hewlett Packard Enterprise Co. HPE, JinkoSolar Holding Co., Ltd. JKS and PVH Corp. PVH.
Pick These 5 Bargain Stocks with Alluring EV-to-EBITDA Ratios
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 a bargain. However, even this universally used valuation multiple is not without its limitations.
While P/E enjoys great 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.
Boise Cascade Co., AZZ Inc., Hewlett Packard Enterprise Co., JinkoSolar Holding Co., Ltd. and PVH Corp. are some stocks with attractive EV-to-EBITDA ratios.
Is EV-to-EBITDA a Better Substitute to P/E?
Also referred to as 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, its debt and preferred stock minus cash and cash equivalents. In essence, it is the entire value of a company.
EBITDA, the other element 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.
Generally, the lower the EV-to-EBITDA ratio, the more enticing it is. A low EV-to-EBITDA ratio could indicate 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.
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 tool in 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.
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.
Therefore, instead of just 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 results.
Here are our five picks out of the 12 stocks that passed the screen:
Boise Cascade operates as a wood products manufacturer and building materials distributor. This Zacks Rank #1 stock has a Value Score of A.
The Zacks Consensus Estimate for Boise Cascade’s current-year earnings has been revised 0.4% upward over the past 60 days. BCC’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 25.5%, on average.
AZZ is a global provider of metal coating services, welding solutions, specialty electrical equipment and highly engineered services. 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.
AZZ has an expected year-over-year earnings growth rate of 17.2% for the current fiscal year. The Zacks Consensus Estimate for AZZ’s current fiscal-year earnings has been revised 3% upward over the last 60 days.
Hewlett Packard Enterprise is focused on developing solutions that allow customers to capture, analyze and act upon data seamlessly from edge to cloud. This Zacks Rank #2 stock has a Value Score of A.
Hewlett Packard Enterprise has an expected year-over-year earnings growth rate of 5.9% for the current fiscal year. HPE’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 9.6%, on average.
JinkoSolar is one of the leading solar module manufacturers, which distributes its solar products to a diversified international utility, commercial and residential customer base globally. This Zacks Rank #2 stock has a Value Score of A.
JinkoSolar has an expected year-over-year earnings growth rate of 97.1% for the current year. JKS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 88.3%, on average.
PVH specializes in designing and marketing branded dress shirts, neckwear, sportswear, jeanswear, intimate apparel, swim products, footwear, handbags and related products. This Zacks Rank #2 stock has a Value Score of A.
PVH has an expected year-over-year earnings growth rate of 15.2% for the current fiscal year. The Zacks Consensus Estimate for PVH’s current fiscal-year earnings has been revised 3.2% 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/2171285/pick-these-5-bargain-stocks-with-alluring-ev-to-ebitda-ratios
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JinkoSolar Holding Company Limited (JKS) : Free Stock Analysis Report
AZZ Inc. (AZZ) : Free Stock Analysis Report
PVH Corp. (PVH) : Free Stock Analysis Report
Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report
Hewlett Packard Enterprise Company (HPE) : Free Stock Analysis Report
