Zacks.com featured highlights KT, Hamilton Insurance, EZCORP, Financial Institutions and Greenbrier
For Immediate Release
Chicago, IL – August 29, 2024 – Stocks in this week’s article are KT Corp. KT, Hamilton Insurance Group, Ltd. HG, EZCORP, Inc. EZPW, Financial Institutions, Inc. FISI and The Greenbrier Companies, Inc. GBX.
5 Value Stocks with Exciting EV-to-EBITDA Ratios to Scoop Up
Investors generally tend to cling to the price-to-earnings (P/E) metric while looking for bargain stocks. In addition to being a widely used tool for screening stocks, P/E is also a popular metric to work out the fair market value of a company. But even this ubiquitously used valuation multiple has a few downsides.
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.
KT Corp., Hamilton Insurance Group, Ltd., EZCORP, Inc., Financial Institutions, Inc. and The Greenbrier Companies, Inc. are some stocks with attractive EV-to-EBITDA ratios.
Is EV-to-EBITDA a Better Substitute to P/E?
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 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 enticing 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 that the P/E ratio does not. Due to this reason, EV-to-EBITDA is generally used to value the 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 in 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.
EV-to-EBITDA is not devoid of limitations and alone cannot 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.
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 10 stocks that passed the screen:
KT is the biggest telecommunications operator in the Republic of Korea. This Zacks Rank #1 stock has a Value Score of A.
KT has an expected earnings growth rate of 20% for 2024. The Zacks Consensus Estimate for KT's 2024 earnings has been revised 3.9% upward over the past 60 days.
Hamilton Insurance Group is a specialty insurance and reinsurance company that underwrites risks worldwide. This Zacks Rank #1 stock has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hamilton Insurance Group has an expected earnings growth rate of 72.5% for 2024. The consensus estimate for HG's 2024 earnings has been revised 22.7% upward over the past 60 days.
EZCORP is engaged in establishing, acquiring and operating pawnshops that function as convenient sources of consumer credit and value-oriented specialty retailers of primarily previously owned merchandise. This Zacks Rank #1 stock has a Value Score of A.
EZCORP has an expected year-over-year earnings growth rate of 22.8% for fiscal 2024. The consensus estimate for EZPW’s fiscal 2024 earnings has been revised 1.8% upward over the past 60 days.
Financial Institutions is a financial holding company offering banking and wealth management products and services. This Zacks Rank #1 stock has a Value Score of B.
FISI has an expected earnings growth rate of 15.6% for 2024. The Zacks Consensus Estimate for FISI's 2024 earnings has been revised 14.1% upward over the past 60 days.
The Greenbrier Companies is a leading supplier of transportation equipment and services to the railroad and related industries. This Zacks Rank #2 stock has a Value Score of A.
The Greenbrier Companies has an expected year-over-year earnings growth rate of 46.5% for fiscal 2024. The consensus estimate for GBX’s fiscal 2024 earnings has been revised 2.4% 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/2328035/5-value-stocks-with-exciting-ev-to-ebitda-ratios-to-scoop-up
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KT Corporation (KT) : Free Stock Analysis Report
EZCORP, Inc. (EZPW) : Free Stock Analysis Report
Financial Institutions, Inc. (FISI) : Free Stock Analysis Report
Greenbrier Companies, Inc. (The) (GBX) : Free Stock Analysis Report
Hamilton Insurance Group, Ltd. (HG) : Free Stock Analysis Report