Select These 5 Value Stocks Featuring Attractive EV-to-EBITDA Ratios

Why Investors Should Look Beyond the P/E Ratio

Many investors rely heavily on the price-to-earnings (P/E) ratio when searching for undervalued stocks. While P/E is a common tool for evaluating whether a stock is fairly priced, it does have its shortcomings. For a more comprehensive assessment, the EV-to-EBITDA ratio offers a deeper look into a company's value and earning power.

Advantages of Using EV-to-EBITDA

The EV-to-EBITDA ratio, also known as the enterprise multiple, is calculated by dividing a company's enterprise value (EV) by its earnings before interest, taxes, depreciation, and amortization (EBITDA). EV represents the total value of a business, including market capitalization, debt, and preferred stock, minus cash and equivalents. EBITDA removes the effects of non-cash expenses, providing a clearer view of operational profitability and often serving as a proxy for cash flow.

A lower EV-to-EBITDA ratio typically signals that a stock may be undervalued. Unlike the P/E ratio, EV-to-EBITDA factors in a company's debt, making it especially useful for evaluating potential acquisition targets. Companies with low EV-to-EBITDA multiples are often seen as attractive takeover candidates.

While P/E cannot be used for companies with negative earnings, and is susceptible to accounting adjustments, EV-to-EBITDA is more resistant to manipulation and can be applied to firms with positive EBITDA but negative net income. This ratio is also helpful for comparing highly leveraged companies or those with significant depreciation expenses. However, it’s important to note that EV-to-EBITDA can vary widely across industries, so it’s best used to compare companies within the same sector.

For a well-rounded analysis, investors should consider EV-to-EBITDA alongside other valuation ratios such as price-to-book (P/B), P/E, and price-to-sales (P/S).

How to Identify Bargain Stocks

To find undervalued stocks, consider the following screening criteria:

• EV-to-EBITDA (12 Months-Most Recent) below Industry Median: Indicates a potentially undervalued stock.
• P/E (F1) below Industry Median: Screens for stocks trading at a discount compared to peers.
• P/B below Industry Median: Suggests the stock is priced lower than the industry average.
• P/S below Industry Median: A lower ratio means investors pay less for each dollar of sales.
• Estimated One-Year EPS Growth (F1/F0) at or above Industry Median: Focuses on companies with above-average growth prospects.
• Average 20-day Volume of at least 50,000: Ensures sufficient liquidity for trading.
• Current Price of $5 or higher: Filters out very low-priced stocks.
• Zacks Rank of 1 or 2: Stocks with these ranks have historically outperformed the market.
• Value Score of A or B: Combining a high Value Score with a strong Zacks Rank increases the likelihood of strong performance.

Top Five Stock Picks Based on These Criteria

• BCB Bancorp: Parent company of BCB Community Bank, offering a variety of banking services. This stock holds a Zacks Rank #1 and a Value Score of A. Expected earnings growth for 2026 is 234.5%, with consensus estimates rising 14.1% in the past two months.
• FirstSun Capital Bancorp: The holding company for Sunflower Bank, N.A. This Zacks Rank #2 stock has a Value Score of A. Projected earnings growth for 2026 is 13.8%, with estimates up 9.8% over the last 60 days.
• Nomad Foods: Producer and distributor of frozen foods across several European countries. This Zacks Rank #2 company has a Value Score of A. Expected earnings growth for 2026 is 0.5%, with consensus estimates up 1.6% in the past 60 days.
• Genesco: Specializes in retailing footwear and accessories in North America and Europe. This Zacks Rank #2 stock holds a Value Score of A. Expected earnings growth for the current fiscal year is 43.2%, with estimates up 42.1% in the last two months.
• ASGN Incorporated: A leading provider of IT services for commercial and government clients. This Zacks Rank #2 stock has a Value Score of A. Projected earnings growth for 2026 is 10.1%, with estimates up 1.2% over the past 60 days.

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This article was first published by Zacks Investment Research.

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