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The Enterprise Value / Revenue ratio ("EV/Rev") is an indicator similar to the Price / Sales ratio but with a difference that can make it superior. While both indicators have sales in the denominator, Enterprise Value / Revenue substitutes price with an alternative known as enterprise value.

Enterprise Value = Market Cap - Cash & Equivalents + Debt + Minority Interest + Preferred Shares
Enterprise Value is often simplified to Market Cap - Cash & Equivalents + Debt

Enterprise value can be thought of as the true price of a business since buying a business includes receiving its cash and taking on its debt. Using enterprise value instead of market cap in a valuation metric has the effect of penalizing debt and rewarding cash.

However, problems arise when we look at stocks with the lowest EV/Rev.

The companies with the lowest positive ratios are those that have almost as much cash as market cap plus debt. When a company has more cash than market cap plus debt, the ratio becomes negative and can no longer be compared to other companies. That's even though it may be a better value than a company with a low EV/Rev.

On the other hand, this is not a problem with large cap stocks. Stocks with negative enterprise values are mostly micro-cap stocks with troubled operating history.

In short, Enterprise Value / Revenue has an advantage over the similar Price / Sales ratio but also has a problem when applied to micro-cap stocks. Although it should not be the only indicator used to determine which stocks to invest in, it can be a powerful tool when combined with other indicators.

A few more thoughts:

  • Free cash flow, or operating cash flow could be used instead of revenue, as could book value or earnings.

  • Enterprise Value / Revenue compared to projected growth could be used similarly to the PEG ratio.

  • Enterprise Value / Revenue data is available on Yahoo Finance.

  • The median Enterprise Value / Revenue ratio is near 1.5.

Enterprise Value to Revenue is a component of our stock ratings, which combine multiple indicators into a single market beating system.

S&P 1500 Stocks with the Lowest Enterprise Value to Revenue Ratio

Company Ticker Enterprise Value / Revenue
WellCare Health Plans Inc. WCG 0.02
Humana Inc. HUM 0.04
Health Net Inc. HNT0.07
Ingram Micro Inc. IM 0.07
Tech Data Corp. TECD 0.07
Molina Healthcare Inc. MOH 0.07
World Fuel Services Corp. [INT 0.09
ResMed Inc. RMD 0.1
StarTek Inc. SRT 0.11
AmerisourceBergen Corporation ABC 0.12
Cardinal Health Inc. CAH 0.12
Office Depot Inc. ODP 0.13
Kelly Services Inc. KELYA 0.13
Eastman Kodak Co. EK 0.14
The Great Atlantic & Pacific Tea Company Inc. GAP 0.14
Nash Finch Co. NAFC 0.14
Novatel Wireless Inc. NVTL 0.14
Stewart Information Services Corp. STC 0.14
SYNNEX Corp. SNX 0.14

Disclosure: None



Disclosure: Disclosure: None

Source: 19 S&P 1500 Stocks With the Lowest Enterprise Value to Revenue Ratio