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Zacks.com featured highlights include: Boise Cascade, Comfort Systems USA, Celestica, Amkor Technology and Graphic Packaging

Zacks Equity Research

For Immediate Release

Chicago, IL – August 11, 2020 – Stocks in this week’s article are Boise Cascade Company BCC, Comfort Systems USA, Inc. FIX, Celestica Inc. CLS, Amkor Technology, Inc. AMKR and Graphic Packaging Holding Company GPK.

5 Stocks with Amazingly Low 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 while handpicking stocks that are trading at attractive prices. However, even this straightforward, broadly used valuation metric suffers a few downsides.

Why EV-to-EBITDA Is a Better Alternative

While the widespread use of P/E stems from its simplicity, a more-complicated metric called EV-to-EBITDA is sometimes viewed as a better approach as it offers a clearer picture of a company’s valuation and earnings potential. EV-to-EBITDA determines the total value of a firm while P/E considers only its equity portion.

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.

The other component of the ratio, EBITDA, gives a better idea of a company’s profitability as it removes 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.

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 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.

Another key drawback of P/E is that it cannot be used to value a loss-making entity. A firm’s earnings are subject to accounting estimates and management manipulation. In contrast, EV-to-EBITDA is less amenable to manipulation and can be used to value companies that are making a loss but are 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. Moreover, it can be used to compare companies with different levels of debt.

However, EV-to-EBITDA has its limitations too. It varies across industries and is not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

Thus, instead of solely banking on EV-to-EBITDA, you can club it with other key ratios in your stock investment toolkit such as price-to-book (P/B), P/E and price-to-sales (P/S) to uncover value stocks.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1038556/5-stocks-with-amazingly-low-ev-to-ebitda-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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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Comfort Systems USA, Inc. (FIX) : Free Stock Analysis Report
 
Amkor Technology, Inc. (AMKR) : Free Stock Analysis Report
 
Graphic Packaging Holding Company (GPK) : Free Stock Analysis Report
 
Celestica, Inc. (CLS) : Free Stock Analysis Report
 
Boise Cascade, L.L.C. (BCC) : Free Stock Analysis Report
 
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