Chicago, IL – February 13, 2025 – Stocks in this week’s article are — EnerSys ENS, MRC Global Inc. MRC, KT Corp. KT, Brookfield Infrastructure Partners L.P. BIP and JinkoSolar Holding Co., Ltd. JKS
The price-to-earnings (P/E) ratio is broadly considered the yardstick for evaluating the fair market value of a stock. It is preferred by many investors while handpicking stocks trading at attractive prices. However, even this universally used valuation multiple is not without its limitations.
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.
EnerSys, MRC Global Inc., KT Corp., Brookfield Infrastructure Partners L.P. and JinkoSolar Holding Co., Ltd. are some stocks with impressive 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, its debt and preferred stock minus cash and cash equivalents. EBITDA, the other component of the multiple, 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.
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. 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 tool in measuring the value of firms that are highly leveraged and have a high degree of depreciation. 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.
A strategy solely based on EV-to-EBITDA might not yield the desired results. However, 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 17 stocks that passed the screen:
EnerSys engages in the manufacturing, marketing and distribution of various industrial batteries. This Zacks Rank #1 stock has a Value Score of A.
EnerSys has an expected earnings growth rate of 19.3% for fiscal 2025. The consensus estimate for ENS’ fiscal 2025 earnings has been revised 12.4% higher over the last 60 days.
MRC Global is one of the leading distributors of pipes, valves and fittings, and related products and services. 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.
MRC Global has an expected earnings growth rate of 26.3% for 2025. The consensus estimate for MRC’s 2025 earnings has been revised 4.2% higher over the last 60 days.
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 211.4% for 2025. The Zacks Consensus Estimate for KT's 2025 earnings has been revised 7.9% 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 10.6% for 2025. The Zacks Consensus Estimate for BIP’s 2025 earnings has been revised 3.3% upward over the last 60 days.
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 #2 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.
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JinkoSolar Holding Company Limited (JKS) : Free Stock Analysis Report
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