5 Value Stocks With Incredibly Low EV-to-EBITDA Ratios to Snap Up
Investors generally have a fixation 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 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 the popularity of P/E stems from its simplicity, a more complicated and less-used metric called EV-to-EBITDA is often viewed as a better option, as it offers a clearer picture of a company’s valuation and earnings potential. EV-to-EBITDA has a more complete approach to valuation as it determines a firm’s total value. In contrast, P/E only considers a firm’s equity portion.
Kohl's Corporation KSS, Lifetime Brands, Inc. LCUT, Mativ Holdings, Inc. MATV, Ultrapar Participacoes S.A. UGP and Chatham Lodging Trust CLDT are some stocks with impressive EV-to-EBITDA ratios.
EV-to-EBITDA is a Better Alternative, Here’s Why
Also referred to as the 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 by removing 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.
Just like P/E, the lower the EV-to-EBITDA ratio, the more attractive it is. A low EV-to-EBITDA ratio could signal 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.
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 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.
But EV-to-EBITDA has its shortcomings, too. The ratio varies across industries (a high-growth industry typically has a higher multiple and vice versa). It is usually not appropriate when comparing stocks in different industries, given their diverse capital requirements.
As such, a strategy entirely based on EV-to-EBITDA might not yield the desired results. But you can combine it with other key ratios such as price-to-book (P/B), P/E and price-to-sales (P/S) to screen true value stocks.
Screening Criteria
Here are the parameters to screen for value stocks:
EV-to-EBITDA 12 Months-Most Recent less than X-Industry Median: A lower EV-to-EBITDA ratio represents a cheaper valuation.
P/E using (F1) less than X-Industry Median: This metric screens stocks that are trading at a discount to their peers.
P/B less than X-Industry Median: A lower P/B compared with the industry average implies that the stock is undervalued.
P/S less than X-Industry Median: The lower the P/S ratio, the more attractive the stock is, as investors will have to pay a smaller price for the same amount of sales generated by the company.
Estimated One-Year EPS Growth F(1)/F(0) greater than or equal to X-Industry Median: This parameter will help in screening stocks that have growth rates higher than the industry median.
Average 20-day Volume greater than or equal to 50,000: The addition of this metric ensures that shares can be traded easily.
Current Price greater than or equal to $5: This parameter will help in screening stocks that are trading at a minimum price of $5 or higher.
Zacks Rank less than or equal to 2: It is a fundamental truth that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have always managed to beat adversities and outperform the market.
Value Score of less than or equal to B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here are our five picks out of the 14 stocks that passed the screen:
Kohl’s is a U.S.-based department store retailer, offering moderately priced apparel, footwear and accessories for women, men and children, along with beauty and home products. This Zacks Rank #1 stock has a Value Score of A.
Kohl’s has an expected year-over-year earnings growth rate of 17.3% for the current fiscal year. The Zacks Consensus Estimate for KSS’s current fiscal-year earnings has been revised 39.7% higher over the last 60 days.
Lifetime Brands is a leading global provider of branded kitchenware, tableware and other products. 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.
Lifetime Brands has an expected year-over-year earnings growth rate of 156.8% for 2026. The consensus estimate for LCUT’s 2026 earnings has moved up 184.9% over the past 60 days.
Mativ Holdings is a specialty materials company, offering a wide range of critical components and engineered solutions. This Zacks Rank #2 stock has a Value Score of A.
Mativ Holdings has an expected year-over-year earnings growth rate of 38.6% for the current year. The consensus estimate for MATV’s current-year earnings has been revised 14.1% upward over the past 60 days.
Ultrapar Participacoes is one of the largest distributors of liquefied petroleum gas in Brazil and a leading producer of petrochemicals and chemicals. This Zacks Rank #2 company has a Value Score of A.
Ultrapar Participacoes has an expected year-over-year earnings growth rate of 190% for 2026. The Zacks Consensus Estimate for UGP's 2026 earnings has been revised 21.7% upward over the past 60 days.
Chatham Lodging Trust is a lodging real estate investment trust that invests in premium-branded upscale extended-stay and select-service hotels. This Zacks Rank #2 company has a Value Score of A.
Chatham Lodging Trust has an expected year-over-year earnings growth rate of 32.4% for 2026. The consensus estimate for CLDT’s 2026 earnings has moved up 4.7% over the past 60 days.
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See Stocks Free >>Kohl's Corporation (KSS) : Free Stock Analysis Report
Chatham Lodging Trust (REIT) (CLDT) : Free Stock Analysis Report
Ultrapar Participacoes S.A. (UGP) : Free Stock Analysis Report
Lifetime Brands, Inc. (LCUT) : Free Stock Analysis Report
Mativ Holdings, Inc. (MATV) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
