Zacks.com featured highlights include: G-III, Vitamin Shoppe, Tech Data and Smart & Final

 

For Immediate Release

Chicago, IL – April 3, 2019 - Stocks in this week’s article are G-III Apparel Group, Ltd. GIII, Vitamin Shoppe, Inc. VSI, Tech Data Corp. TECD, Israel Chemicals Ltd. ICL and Smart & Final Stores, Inc. SFS.

Pick These 5 Bargain Stocks with Enticing EV/EBITDA Ratios

The price-to-earnings (P/E) ratio is widely considered by investors as a yardstick for evaluating the fair market value of a stock. It is preferred by many investors to handpick stocks trading at attractive prices. However, even this universally used valuation multiple is not without its limitations.

Is EV/EBITDA a Better Alternative to P/E?

While P/E is hands down the most popular equity valuation ratio, there is another metric called EV/EBITDA that works even better in finding value stocks. This ratio is often viewed as a better substitute to P/E as it offers a clearer picture of a company’s valuation and earning potential. EV/EBITDA, also referred to as enterprise multiple, determines the total value of a firm while P/E considers just its equity portion.

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

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

However, unlike P/E ratio, EV/EBITDA takes into account the debt on a company’s balance sheet. For this reason, EV/EBITDA is usually used to value possible acquisition targets. Stocks with a low EV/EBITDA multiple could be seen as potential takeover candidates.

Another downside of P/E is that it can’t be used to value a loss-making company. A company’s earnings are also subject to accounting estimates and management manipulation. EV/EBITDA, in contrast, is less amenable to manipulation and also can be used to value firms that have negative net earnings but are positive on the EBITDA side.

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 also not without its shortcomings and alone cannot conclusively determine a stock’s inherent potential and future performance. The ratio varies across industries and is generally not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

As such, a strategy solely based on EV/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 bargain stocks.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/369048/pick-these-5-bargain-stocks-with-enticing-evebitda-ratios

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Israel Chemicals Shs (ICL) : Free Stock Analysis Report
 
Vitamin Shoppe, Inc (VSI) : Free Stock Analysis Report
 
Smart (SFS) : Free Stock Analysis Report
 
Tech Data Corporation (TECD) : Free Stock Analysis Report
 
G-III Apparel Group, LTD. (GIII) : Free Stock Analysis Report
 
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