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Zacks.com highlights: ArcBest, Cabot, Avianca Holdings, PetroChina and Finish Line

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For Immediate Release

Chicago, IL – March 12, 2018 - Stocks in this week’s article include: ArcBest Corporation ARCB, Cabot Corporation CBT, Avianca Holdings S.A. AVH, PetroChina Company Limited PTR and The Finish Line, Inc. FINL.

Screen of the Week of Zacks Investment Research:

Tap 5 Value Stocks Sporting Enticing EV/EBITDA Ratios

The price-to-earnings (P/E) ratio is the most-preferred one among valuation metrics in the investment toolkit for assessing the fair market value of a stock. Many prefer to take the P/E route in their pursuit of stocks that are trading at attractive prices. But even this widely popular equity valuation multiple has a few pitfalls.

What Makes EV/EBITDA a Better Substitute?

While P/E is the most commonly used tool for evaluating a firm’s value, another valuation metric called EV/EBITDA works even better. The ratio is often viewed as a better alternative to P/E as it offers a clearer image of a company’s valuation and its earnings potential. EV/EBITDA also has a more complete approach to valuation as it determines the total value of a firm as opposed to P/E, which considers only its equity portion.  

Also referred to as the enterprise multiple, EV/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. Simply put, it is the total value of a firm.

The other constituent, EBITDA gives the true picture of a firm’s profitability as it eliminates the impact of non-cash expenses like depreciation and amortization that dilute net earnings.

Usually, the lower the EV/EBITDA ratio, the more attractive it is. A low EV/EBITDA ratio could imply that a stock is potentially undervalued and vice versa.

EV/EBITDA also takes into account the debt on a company’s balance sheet that P/E ratio ignores. This is the reason why EV/EBITDA is typically used to value potential acquisition targets. It shows the amount of debt the acquirer has to bear. Stocks with a low EV/EBITDA multiple could be seen as attractive takeover candidates.

Another major drawback 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. EV/EBITDA, in contrast, is hard to manipulate and can also be used to value firms that have negative net earnings but are positive on the EBITDA front.

Moreover, EV/EBITDA allows the comparison of companies with different debt levels and is a useful tool in measuring the value of firms that are highly leveraged and have substantial depreciation and amortization expenses.

However, EV/EBITDA is not without its limitations and it alone can’t conclusively determine a stock’s inherent potential and future performance. 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.

As such, instead of solely banking on EV/EBITDA, you can combine it with the other major ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to screen true value stocks.

And that's what we're screening for today…

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/295036/tap-5-value-stocks-sporting-enticing-evebitda-ratios

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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.

About Screen of the Week

Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine.  But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.

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ArcBest Corporation (ARCB) : Free Stock Analysis Report
 
Cabot Corporation (CBT) : Free Stock Analysis Report
 
PetroChina Company Limited (PTR) : Free Stock Analysis Report
 
The Finish Line, Inc. (FINL) : Free Stock Analysis Report
 
Avianca Holdings S.A. (AVH) : Free Stock Analysis Report
 
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