For Immediate Release
Chicago, IL – November 18, 2022 – Stocks in this week’s article are PBF Energy Inc. PBF, Innoviva, Inc. INVA, Global Partners LP GLP, Heritage-Crystal Clean, Inc HCCI and Sterling Infrastructure, Inc. STRL.
5 Value Stocks with Attractive EV-to-EBITDA Ratios to Snap Up
Price-to-earnings (P/E), given its inherent simplicity, is the most commonly used metric in the value investing world. It is preferred by many investors while handpicking stocks trading at attractive prices. However, even this straightforward, broadly used valuation metric has a few limitations.
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.
PBF Energy Inc., Innoviva, Inc., Global Partners LP, Heritage-Crystal Clean, Inc and Sterling Infrastructure, Inc. are some stocks with impressive EV-to-EBITDA ratios.
What Makes EV-to-EBITDA a Better Alternative?
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.
EBITDA, the other constituent of the ratio, gives a clearer picture of a company’s profitability as it removes the impact of non-cash expenses like depreciation and amortization that dampen 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 be a sign that a stock is potentially undervalued.
However, unlike the P/E ratio, EV-to-EBITDA takes into account the debt on a company’s balance sheet. Given this reason, EV-to-EBITDA is usually used to value the possible acquisition targets. Stocks with a low EV-to-EBITDA multiple could be seen as potential takeover candidates.
P/E also can’t be used to value a loss-making firm. A firm’s earnings are also subject to accounting estimates and management manipulation. In contrast, EV-to-EBITDA is harder to manipulate and can be used to value companies with negative net earnings but are positive on the EBITDA front.
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.
However, EV-to-EBITDA is not devoid of shortcomings and alone can’t conclusively determine a stock’s inherent potential and future performance. The multiple varies across industries and is usually not appropriate while comparing stocks in different industries given their diverse capital expenditure 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 12 stocks that passed the screen:
PBF Energy provides end products that comprise heating oil, transportation fuels, lubricants and many related products. This Zacks Rank #1 stock has a Value Score of A.
PBF Energy has an expected earnings growth rate of 1,048.8% for the current year. The Zacks Consensus Estimate for PBF's current-year earnings has been revised 24.8% upward over the past 60 days.
Innoviva is a diversified holding company with a portfolio of royalties and other healthcare assets. INVA, flaunting a Zacks Rank #1, has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Innoviva has an expected year-over-year earnings growth rate of 5.8% for the current year. The consensus estimate for INVA's current-year earnings has been revised 8.8% upward over the last 60 days.
Global Partners is focused on the distribution of gasoline, distillates, residual oil and renewable fuels, apart from owning several refined-petroleum-product terminals. GLP, a Zacks Rank #1 stock, has a Value Score of A.
Global Partners has an expected year-over-year earnings growth rate of 654.2% for the current year. GLP’s consensus estimate for the current year has been revised 37.8% upward over the last 60 days.
Heritage-Crystal Clean is a leading provider of parts cleaning, used oil re-refining, and hazardous and non-hazardous waste services. This Zacks Rank #2 stock has a Value Score of A.
Heritage-Crystal Clean has an expected earnings growth rate of 26.6% for the current year. HCCI’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 37%.
Sterling Infrastructure specializes in transportation, e-infrastructure and building solutions. This Zacks Rank #2 stock has a Value Score of A.
Sterling Infrastructure has an expected earnings growth rate of 47.4% for the current year. The Zacks Consensus Estimate for STRL’s current-year earnings has been revised 4.6% upward over the past 60 days.
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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/2019235/5-value-stocks-with-attractive-ev-to-ebitda-ratios-to-snap-up
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Global Partners LP (GLP) : Free Stock Analysis Report
Sterling Infrastructure, Inc. (STRL) : Free Stock Analysis Report
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HeritageCrystal Clean, Inc. (HCCI) : Free Stock Analysis Report
Innoviva, Inc. (INVA) : Free Stock Analysis Report
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