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Zacks.com featured highlights include: Synnex, Newell Brands, First Horizon National, Qiwi and AZZ

Zacks Equity Research

For Immediate Release

Chicago, IL –November 15, 2019 - Stocks in this week’s article are Synnex Corp. SNX, Newell Brands Inc. NWL, First Horizon National Corp. FHN, Qiwi plc QIWI and AZZ Inc. AZZ.

5 Value Stocks with Exciting EV/EBITDA Ratios to Own Now

The price-to-earnings (P/E) ratio is the most commonly used tool for evaluating a firm’s value due to its simplicity. A widely favored approach by value investors is to chase stocks that have a low P/E ratio. However, even this broadly used valuation multiple is not without its shortcomings.

Why EV/EBITDA is a Better Choice?

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

EV/EBITDA is essentially the enterprise value (EV) of a stock divided by its earnings before interest, taxes, depreciation and amortization (EBITDA). The first constituent of the ratio, EV, is a firm’s market capitalization plus the market value of its debt and preferred equity minus cash.

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

Just like P/E, the lower the EV/EBITDA ratio, the more appealing it is. A low EV/EBITDA ratio could be a sign that a stock is potentially undervalued.

While P/E just considers a firm’s equity portion, EV/EBITDA determines its total value. Unlike the P/E ratio, EV/EBITDA takes debt on a company’s balance sheet into consideration. This is also the reason why EV/EBITDA is commonly used to value likely acquisition targets. The ratio shows the amount of debt that the acquirer has to bear. Stocks with a low EV/EBITDA multiple could be seen as attractive takeover candidates.

Moreover, 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. In contrast, EV/EBITDA is difficult to manipulate and can also be used to value companies that are making loss but are EBITDA-positive.

EV/EBITDA is also a useful tool in measuring the value of firms with a debt-laden balance sheet and have a high degree of depreciation. It also allows the comparison of companies with different debt levels.

However, EV/EBITDA is also not without its shortcomings and it alone can’t conclusively determine a stock’s inherent potential and its future performance. The multiple varies across industries (a high-growth industry typically has higher multiple) and is generally not appropriate for comparing stocks in different industries due to their diverse capital requirements.

As such, a strategy solely based on EV/EBITDA might not fetch the desired outcome.  But you can combine 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 uncover value stocks.

For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/619418/5-value-stocks-with-exciting-evebitda-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/performance for information about the performance numbers displayed in this press release.





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Newell Brands Inc. (NWL) : Free Stock Analysis Report
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