Zacks.com featured highlights include UFP Industries, Unum Group, EnerSys, DXP Enterprises and Group 1 Automotive
For Immediate Release
Chicago, IL – July 6, 2023 – Stocks in this week’s article are UFP Industries, Inc. UFPI, Unum Group UNM, EnerSys ENS, DXP Enterprises, Inc. DXPE and Group 1 Automotive, Inc. GPI.
5 Value Stocks with Exciting EV-to-EBITDA Ratios to Own Now
Investors typically have a fixation on the price-to-earnings (P/E) strategy while seeking stocks trading at attractive prices. This straight forward, easy-to-calculate ratio is the most preferred among all the valuation metrics in the investment toolkit for working out the fair market value of a stock. But even this ubiquitously used valuation metric is not without its pitfalls.
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.
UFP Industries, Inc., Unum Group, EnerSys, DXP Enterprises, Inc. and Group 1 Automotive, Inc. are some stocks with attractive EV-to-EBITDA ratios.
EV-to-EBITDA is a Better Substitute, Here's Why
EV-to-EBITDA is essentially 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 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.
Usually, the lower the EV-to-EBITDA ratio, the more appealing it is. A low EV-to-EBITDA ratio could indicate that a stock is potentially undervalued.
EV-to-EBITDA takes into account the debt on a company's balance sheet that the P/E ratio does not. Due to this reason, EV-to-EBITDA is generally used to value the 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 shortcoming of P/E is that it can't be used to value a loss-making firm. A company'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 loss-making companies that are EBITDA positive.
EV-to-EBITDA is also a useful yardstick in evaluating 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.
But EV-to-EBITDA has its limitations too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa) and is usually not appropriate while comparing stocks in different industries, given their diverse capital requirements.
Therefore, 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.
Here are our five picks out of the 10 stocks that passed the screen:
UFP Industries supplies wood, wood composite and other products in retail, industrial and construction markets. This Zacks Rank #1 stock has a Value Score of A.
The Zacks Consensus Estimate for UFP Industries' current-year earnings has been revised 4.4% upward over the past 60 days. UFPI beat the Zacks Consensus Estimate for earnings in each of the last four quarters at an average of 22.7%.
Unum Group provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. This Zacks Rank #1 stock has a Value Score of A. You can see the complete list of today's Zacks #1 Rank stocks here.
Unum Group has an expected year-over-year earnings growth rate of 20.6% for the current year. The Zacks Consensus Estimate for UNM's current-year earnings has been revised 5.9% upward over the last 60 days.
EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. This Zacks Rank #1 stock has a Value Score of B.
EnerSys has an expected year-over-year earnings growth rate of 28.1% for the current fiscal year. The Zacks Consensus Estimate for ENS's current-year earnings has been revised 11.6% upward over the last 60 days.
DXP Enterprises provides innovative pumping solutions, supply-chain services as well as maintenance, repair, operating and production services. This Zacks Rank #1 stock has a Value Score of B.
DXP Enterprises has an expected year-over-year earnings growth rate of 44.2% for the current year. The consensus estimate for DXPE's current-year earnings has been revised 52.2% upward over the last 60 days.
Group 1 Automotive is one of the leading automotive retailers in the world. GPI, a Zacks Rank #2 stock, has a Value Score of A.
The consensus estimate for Group 1 Automotive's current-year earnings has been revised 4% upward over the past 60 days. GPI's earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 9.7%, on average.
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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/2116802/5-value-stocks-with-exciting-ev-to-ebitda-ratios-to-own-now
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UFP Industries, Inc. (UFPI) : Free Stock Analysis Report
Unum Group (UNM) : Free Stock Analysis Report
Group 1 Automotive, Inc. (GPI) : Free Stock Analysis Report
DXP Enterprises, Inc. (DXPE) : Free Stock Analysis Report
Enersys (ENS) : Free Stock Analysis Report
