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Zacks.com featured highlights: Kraton, Cosan, Synnex, Plains GP Holdings and Fiat Chrysler Automobiles

For Immediate Release

Chicago, IL – November 1, 2017 - Stocks in this week’s article Kraton Corporation KRA, Cosan Limited CZZ, Synnex Corporation SNX, Plains GP Holdings, L.P. PAGP and Fiat Chrysler Automobiles N.V. FCAU.

Screen of the Week by Zacks Investment Research:

Pick These 5 Bargain Stocks with Enticing EV/EBITDA Ratios

Value investors generally tend to cling to the price-to-earnings (P/E) strategy while seeking stocks that are trading at bargain prices. P/E, without a shadow of a doubt, is the most popular multiple used by investors for evaluating the fair market value of a stock. But even this straightforward, broadly used valuation metric suffers a few downsides.

Why EV/EBITDA is a Better Alternative?

While P/E is hands down the most commonly used equity valuation ratio in the market, a relatively less-used metric called EV/EBITDA is often viewed as a better option as it offers a clearer image of a company’s valuation and earnings potential. Unlike P/E that solely considers a company’s equity portion, EV/EBITDA determines its total value.

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 essence, it is the full value of a company.

The other component of the multiple, EBITDA gives a clearer picture of a company’s profitability as it eliminates the impact of non-cash expenses like depreciation and amortization that dilute net earnings. It is also often used as a proxy for cash flows.

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

EV/EBITDA also takes into account the debt on a company’s balance sheet that P/E does not. Given this reason, EV/EBITDA is generally used to value potential acquisition targets as it shows the amount of debt the acquirer has to assume. Stocks with a low EV/EBITDA multiple could be seen as attractive takeover candidates.

Another major limitation of P/E is that it can’t be used to value a loss-making entity. A firm’s earnings are also subject to accounting estimates and management manipulation. In contrast, EV/EBITDA is hard to manipulate and can also be used to value firms that have negative net earnings but are positive on the EBITDA front.

EV/EBITDA is also a useful yardstick in assessing the value of firms that are highly leveraged and have a high degree of depreciation. It also can be used to compare companies with different levels of debt.

But EV/EBITDA is also not without its shortcomings and alone cannot conclusively determine a stock’s inherent potential and future performance. The ratio varies across industries and is generally not appropriate while comparing stocks in different industries given their diverse capital spending requirements.

Thus, a strategy only based on EV/EBITDA might not fetch the desired results. But you can club 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.

For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/280980/pick-these-5-bargain-stocks-with-enticing-evebitda-ratios

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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Strong Stocks that Should Be in the News

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Fiat Chrysler Automobiles N.V. (FCAU): Free Stock Analysis Report
 
Kraton Corporation (KRA): Free Stock Analysis Report
 
Synnex Corporation (SNX): Free Stock Analysis Report
 
Plains Group Holdings, L.P. (PAGP): Free Stock Analysis Report
 
Cosan Limited (CZZ): Free Stock Analysis Report
 
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