For Immediate Release

Chicago, IL – August 15, 2018 – Stocks in this week’s article are Huntsman Corporation HUN, Matson, Inc. MATX, GMS Inc. GMSCovenant Transportation Group, Inc. CVTI and Domtar Corporation UFS.

Pick These 5 Bargain Stocks with Impressive EV/EBITDA Ratios

Investors typically have a fixation for the price-to-earnings (P/E) strategy in their quest for stocks that are trading at a bargain. A widely favored approach by value investors is to chase stocks that have a low P/E ratio. But even this straightforward, broadly used valuation metric is not devoid of limitations.

What Makes EV/EBITDA a Better Substitute?

While P/E enjoys significant popularity in the value investing world given its apparent simplicity, a more complicated metric called EV/EBITDA works even better. The ratio is often viewed as a better alternative to P/E as it offers a clearer image of a company’s valuation and its earnings potential. EV/EBITDA, also referred to as enterprise multiple, has a more complete approach to valuation as it determines the total value of a firm as opposed to P/E, which considers only 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. In a nutshell, it is the entire value of a company.

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

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

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Matson, Inc. (MATX): Free Stock Analysis Report
Covenant Transportation Group, Inc. (CVTI): Free Stock Analysis Report
GMS Inc. (GMS): Free Stock Analysis Report
Huntsman Corporation (HUN): Free Stock Analysis Report
Domtar Corporation (UFS): Free Stock Analysis Report
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