Chicago, IL – January 10, 2025 – Stocks in this week’s article are JinkoSolar Holding Co., Ltd. JKS, EnerSys ENS, KT Corp. KT, Brookfield Infrastructure Partners L.P. BIP and Gates Industrial Corp. plc GTES.
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., EnerSys, KT Corp., Brookfield Infrastructure Partners L.P. and Gates Industrial Corp. plc are some stocks with attractive EV-to-EBITDA ratios.
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.
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.
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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/2394125/5-value-stocks-with-enticing-ev-to-ebitda-ratios-to-own-now
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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 Report
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