Zacks.com featured highlights include M/I Homes, Minerals Technologies, GMS, YPF Sociedad Anonima and ADT
For Immediate Release
Chicago, IL – May 8, 2024 – Stocks in this week’s article are M/I Homes, Inc. MHO, Minerals Technologies Inc. MTX, GMS Inc. GMS, YPF Sociedad Anonima YPF and ADT Inc. ADT.
Tap These 5 Bargain Stocks with Impressive EV-to-EBITDA Ratios
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 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.
M/I Homes, Inc., Minerals Technologies Inc., GMS Inc., YPF Sociedad Anonima and ADT Inc. are some stocks with attractive EV-to-EBITDA ratios.
Here’s Why EV-to-EBITDA is a Better Option
Also referred to as enterprise multiple, EV-to-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. In essence, it is the entire value of a company.
EBITDA, the other element, 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.
Typically, the lower the EV-to-EBITDA ratio, the more enticing it is. A low EV-to-EBITDA ratio could indicate that a stock is potentially undervalued.
Unlike the P/E ratio, EV-to-EBITDA takes debt on a company’s balance sheet into account. For this reason, it is typically used to value acquisition targets. The ratio shows the amount of debt that the acquirer has to bear. Stocks flaunting a low EV-to-EBITDA multiple could be seen as attractive takeover candidates.
Moreover, P/E 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 that have negative net earnings but are positive on the EBITDA front.
EV-to-EBITDA is also a useful tool for 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.
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.
Thus, instead of just relying on EV-to-EBITDA, you can club it with the other major ratios, such as price-to-book (P/B), P/E and price-to-sales (P/S), to achieve the desired results.
Here are our five picks out of the 18 stocks that passed the screen:
M/I Homes is one of the leading builders of single-family homes. This Zacks Rank #1 stock has a Value Score of A.
M/I Homes has an expected year-over-year earnings growth rate of 12.2% for the 2024. The consensus estimate for MHO’s 2024 earnings has been revised 11.2% upward over the last 60 days.
Minerals Technologies develops and markets a vast range of mineral and mineral-based products and related systems and services. This Zacks Rank #1 stock has a Value Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Minerals Technologies has an expected year-over-year earnings growth rate of 20.7% for 2024. The consensus estimate for MTX’s 2024 earnings has been revised 6.6% upward over the last 60 days.
GMS is a distributor of wallboard and suspended ceilings systems. This Zacks Rank #2 stock has a Value Score of A.
The consensus estimate for GMS’ current fiscal-year earnings has been revised 0.2% upward over the last 60 days. It has a trailing four-quarter earnings surprise of around 3.1%, on average.
YPF is an international energy company based on the integrated business of hydrocarbons, focused in Latin America, with high standards of efficiency, profitability and responsibility. This Zacks Rank #2 stock has a Value Score of A.
YPF has an expected earnings growth rate of 24.9% for 2024. The consensus estimate for YPF’s 2024 earnings has been revised 37% upward over the past 60 days.
ADT provides security and automation solutions for homes and businesses, primarily in the United States and Canada. This Zacks Rank #2 stock has a Value Score of A.
ADT has an expected year-over-year earnings growth rate of 37.3% for 2024. The Zacks Consensus Estimate for ADT’s 2024 earnings has been stable over the last 60 days.
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YPF Sociedad Anonima (YPF) : Free Stock Analysis Report
ADT Inc. (ADT) : Free Stock Analysis Report
Minerals Technologies Inc. (MTX) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report
GMS Inc. (GMS) : Free Stock Analysis Report