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Zacks.com featured highlights include: Oasis Midstream Partners, Big Lots, Office Depot, B&G Foods and Mr. Cooper Group

Zacks Equity Research

For Immediate Release

Chicago, IL – July 10, 2020 – Stocks in this week’s article are Oasis Midstream Partners LP OMP, Big Lots, Inc. BIG, Office Depot, Inc. ODP, B&G Foods, Inc. BGS and Mr. Cooper Group Inc. COOP.

5 Value Stocks with Enticing EV-to-EBITDA Ratios to Own Now

Investors generally have a fixation on the price-to-earnings (P/E) multiple while seeking stocks that are trading at attractive prices. A widely favored approach by value investors is to chase stocks that have a low P/E ratio. But even this straightforward, broadly used valuation metric suffers a few downsides.

EV-to-EBITDA is a Better Approach, Here’s Why

While P/E enjoys great popularity among value investors, a more-complicated metric called EV-to-EBITDA is sometimes viewed as a better alternative. EV-to-EBITDA, also referred to as the enterprise multiple, gives the true picture of a company’s valuation and earning potential. Additionally, it has a more comprehensive approach to valuation.  

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 clearer picture 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.
 
Usually, the lower the EV-to-EBITDA ratio, the more attractive it is. A low EV-to-EBITDA ratio could be a sign 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. Given this reason, EV-to-EBITDA is usually used to value possible acquisition targets. Stocks with a low EV-to-EBITDA multiple could be seen as potential 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. On the other hand, EV-to-EBITDA is difficult to manipulate and can also be used to value companies that are making loss but are EBITDA-positive.

EV-to-EBITDA is also a useful yardstick in assessing the value of firms that are highly leveraged and have a high degree of depreciation. It can also be used to compare companies with different levels of debt.

Then again, EV-to-EBITDA has its flaws. It varies across industries (a high-growth industry normally has higher multiple and vice versa) and is typically not appropriate while comparing stocks in different industries given their diverse capital expenditure requirements.

Hence, instead of solely relying on EV-to-EBITDA, you can club it with the other key ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to achieve the desired outcome.

For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/1000780/5-value-stocks-with-enticing-evtoebitda-ratios-to-own-now

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
 
Big Lots, Inc. (BIG) : Free Stock Analysis Report
 
Office Depot, Inc. (ODP) : Free Stock Analysis Report
 
BG Foods, Inc. (BGS) : Free Stock Analysis Report
 
Oasis Midstream Partners LP (OMP) : Free Stock Analysis Report
 
MR. COOPER GROUP INC (COOP) : Free Stock Analysis Report
 
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