Stock Screen Of The Day - Pre-Open Monday 1st June 2015...
The EV/EBITDA ratio enables investors to compare stocks (preferably in the same sector or industry) for potentially undervalued investing opportunities. The ratio, an advanced version of the more simplistic P/E ratio, is calculated as Enterprise Value (or EV), divided by the trailing 12 months earnings before interest, tax, depreciation and amortization (or EBITDA).
Enterprise Value is a more complete measure of a company's value, often used as a more total valuation alternative to the market capitalization. Whereas the market capitalization is simply the company share price multiplied by the number of shares, EV is calculated as the market capitalization plus the debt, minus cash and cash equivalents. The EV is effectively the value a potential buyout investor would have to consider (the market capitalization plus debt, minus cash) in purchasing or takeover the company, hence serves as a true measure of the overall value of a business.
EBITDA is earnings before interest, tax, depreciation and amortization. The EV/EBITDA ratio filter, available within the tradepilot stock screener, allow investors to efficiently shortlist those companies which appear relatively undervalued, for further study and analysis. Companies with a low EV/EBITDA ratio, combined with a strong balance sheet, and recent investor interest (price appreciation backed by strong volume) provide for a simple strategy to capture undervalued stocks currently on the move.
The following stock screen looks for companies within the information technology sector, with a market capitalization above US $50 million, average daily volume traded in excess of 30,000 shares, trading positive in the most recent session, on above average volume, with a low EV/EBITDA ratio of less than 15, and a long-term debt/equity ratio of less than 1.0 (LT debt below shareholders equity)...
The results (updated pre-open Monday 1st June) show just five qualifying companies. These are Intel Corporation (NASDAQ:INTC), Kulicke & Soffa Industries (NASDAQ:KLIC), CTS Corp (NYSE:CTS), Teradata Corp (NYSE:TDC), and UNet 1 UEPS Technologies (NASDAQ:UEPS).
The stock screener is available free (no sign up or log in is required, and the screener includes multiple advanced fundamental metrics and ratios, to narrow down the universe of US listed stocks, including price/EBITDA, price/tangible-book ratio, Altman Z-Score, Piotroski F-Score, ROIC, current ratio, plus the popular technical analysis indicators, to improve (subjective) entry/exit timing).
It is important to note, the purpose of a stock screener is purely to narrow down the many thousands of stocks traded in a particular country or exchange, to a shortlist of businesses which one then needs to further study and analyze (the due diligence process), to discover 'why' a particular company may have such a low EV/EBITDA (or any other qualifying metric, such as a low Price/Book ratio, or EV/Free-Cash-Flow). The stock screener is simply a tool, to cut down the noise into a practical watchlist of potential investing ideas.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in INTC over the next 72 hours.