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

Investors are typically fixated on the price-to-earnings (P/E) strategy while seeking stocks trading at attractive prices. This straightforward, 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 is by far the most popular equity valuation ratio, a more complicated metric called EV-to-EBITDA does a better job of valuing a firm. Often viewed as a better substitute to P/E, this ratio offers a clearer picture of a company’s valuation and its earnings potential.JinkoSolar Holding Co., Ltd. JKS, EnerSys ENS, KT Corporation KT, Brookfield Infrastructure Partners L.P. BIP and Gates Industrial Corporation plc GTES are some stocks with attractive EV-to-EBITDA ratios.Is EV-to-EBITDA a Better Substitute to P/E?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, debt and preferred stock minus cash and cash equivalents. EBITDA, the other component, 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.The lower the EV-to-EBITDA ratio, the more appealing it is. A low EV-to-EBITDA ratio indicates that a stock is potentially undervalued. EV-to-EBITDA takes into account the debt on a company’s balance sheet, which the P/E ratio does not. For 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 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 but EBITDA-positive companies. EV-to-EBITDA is also a useful yardstick for measuring 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.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.A strategy solely based on EV-to-EBITDA might not yield the desired results. 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.Screening CriteriaHere are the parameters to screen for value stocks:EV-to-EBITDA 12 Months-Most Recent less than X-Industry Median: A lower EV-to-EBITDA ratio represents a cheaper valuation.P/E using (F1) less than X-Industry Median: This metric screens stocks that are trading at a discount to their peers.P/B less than X-Industry Median: A lower P/B compared with the industry average implies that the stock is undervalued.P/S less than X-Industry Median: The lower the P/S ratio, the more attractive the stock is, as investors will have to pay a smaller price for the same amount of sales generated by the company.Estimated One-Year EPS Growth F(1)/F(0) greater than or equal to X-Industry Median: This parameter will help in screening stocks that have growth rates higher than the industry median. Average 20-day Volume greater than or equal to 50,000: The addition of this metric ensures that shares can be traded easily.Current Price greater than or equal to $5: This parameter will help in screening stocks that are trading at a minimum price of $5 or higher.Zacks Rank less than or equal to 2: It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have always managed to beat adversities and outperform the market.Value Score of less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.Here are our five picks out of the eight stocks that passed the screen:JinkoSolar is one of the leading solar module manufacturers, distributing its solar products to a diversified international utility, commercial and residential customer base globally. This Zacks Rank #1 stock has a Value Score of A. JinkoSolar has an expected year-over-year earnings growth rate of 1,125% for 2025. JKS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, it has delivered an earnings surprise of roughly 529.3%, on average. EnerSys engages in the manufacturing, marketing and distribution of various industrial batteries. This Zacks Rank #2 stock has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.EnerSys has an expected earnings growth rate of 11.7% for fiscal 2025. The consensus estimate for ENS’ fiscal 2025 earnings has been revised 5.3% higher over the last 60 days.KT is the biggest telecommunications operator in the Republic of Korea. This Zacks Rank #2 stock has a Value Score of A.KT has an expected earnings growth rate of 198.8% for 2025. The Zacks Consensus Estimate for KT's 2025 earnings has been revised 1.6% upward over the past 60 days.Brookfield Infrastructure Partners owns and operates high-quality, long-life assets in the utilities, transport, midstream and data businesses in North and South America, Asia Pacific and Europe. This Zacks Rank #2 stock has a Value Score of A.Brookfield Infrastructure has an expected year-over-year earnings growth rate of 10.9% for 2025. The Zacks Consensus Estimate for BIP’s 2025 earnings has been revised 1.8% upward over the last 60 days.Gates Industrial is a manufacturer engineered power transmission and fluid power solutions. This Zacks Rank #2 stock has a Value Score of B.Gates Industrial has an expected earnings growth rate of 14.9% for 2025. The Zacks Consensus Estimate for GTES' 2025 earnings has been revised 2% upward over the past 60 days.You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.Click here to sign up for a free trial to the Research Wizard today.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.Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant 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 JinkoSolar Holding Company Limited (JKS): Free Stock Analysis Report Brookfield Infrastructure Partners LP (BIP): Free Stock Analysis Report KT Corporation (KT): Free Stock Analysis Report Enersys (ENS): Free Stock Analysis Report Gates Industrial Corporation PLC (GTES): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks