Beyond P/E Ratios: Why EV-to-EBITDA Matters for Smart Value Investors

When hunting for undervalued stocks, most investors reach for the price-to-earnings ratio as their primary screening tool. However, seasoned value investors know there’s a more sophisticated approach that paints a fuller picture of a company’s true worth. The enterprise value-to-EBITDA multiple often reveals hidden opportunities that simple P/E analysis might miss.

Understanding the EV-to-EBITDA Advantage

Let’s break down what makes EV-to-EBITDA a superior alternative to P/E for certain situations. The metric divides a company’s enterprise value by its earnings before interest, taxes, depreciation and amortization. Enterprise value encompasses market cap plus debt and preferred stock, minus cash reserves—essentially what an acquirer would actually pay for the business.

Why is this important? EBITDA strips away non-cash charges like depreciation and amortization, giving you a clearer view of operational profitability and cash generation capacity. Meanwhile, P/E ratios are easily distorted by accounting choices and can’t evaluate loss-making companies at all.

Here’s the critical difference: EV-to-EBITDA automatically accounts for debt on the balance sheet, which P/E completely ignores. This matters enormously when comparing heavily leveraged firms or evaluating acquisition candidates. A company with a low EV-to-EBITDA ratio signals potential undervaluation and could be an attractive takeover target—information P/E alone doesn’t convey.

The metric also shines when analyzing highly depreciated assets or companies across different debt structures. It’s nearly impossible to manipulate compared to earnings-based metrics. However, EV-to-EBITDA does have limits: ratios vary dramatically by industry, so cross-industry comparisons are risky. Smart investors combine it with P/B, P/S, and P/E ratios for comprehensive screening.

Five Stocks Meeting Strict Value Criteria

To identify compelling opportunities, we applied multiple filters:

• EV-to-EBITDA below industry median: Indicates cheaper relative valuation
• Forward P/E below industry median: Shows discount to peer group
• Price-to-book below industry median: Signals book value underpricing
• Price-to-sales below industry median: Lower cost per revenue dollar
• Earnings growth ≥ industry median: Ensures quality improvement ahead
• Zacks Rank ≤ 2 (Strong Buy or Buy): Filters for analyst-favored names with superior track records
• Value Score ≤ B: Combined with top Zacks Rank, offers best upside potential

Out of 16 stocks passing these rigorous screens, five stand out:

Plains GP Holdings (PAGP) operates crude oil and refined product transportation, storage, and marketing infrastructure. This Rank #1 holding scores an A for Value. Management guides for 27% earnings growth in 2026, with analyst estimates revised 19.7% upward over the past two months—a strong vote of confidence.

DNOW Inc. (DNOW), a global energy and industrial solutions distributor, carries Rank #1 status and A Value Score. The company projects 18.5% earnings growth for 2026, supported by a modest 2.1% upward consensus revision in recent weeks.

Gibraltar Industries (ROCK) manufactures industrial and building products across diverse end markets. Ranked #2 with Value Score A, it shows 11% projected earnings growth for 2026. Recent analyst activity yielded a 1.5% consensus bump.

Miller Industries (MLR), the towing and recovery equipment leader, commands Rank #2 and Value Score A. The standout growth story here: 139.5% projected earnings expansion in 2026, validated by a 19.7% upward estimate revision—suggesting analysts were previously underestimating recovery momentum.

Sally Beauty Holdings (SBH), an international professional beauty supply retailer, maintains Rank #2 status with Value Score A. Guidance calls for 8.4% fiscal 2026 earnings growth, with a 2.5% positive consensus revision reflecting modest but steady improvement expectations.

The Bottom Line

EV-to-EBITDA bridges a critical gap that P/E ratios leave open, particularly for debt-laden or depreciation-heavy businesses. Combined with complementary valuation metrics and quality filters like Zacks Rank and Value Score, this approach creates a more robust framework for identifying undervalued stocks with genuine growth catalysts. The five stocks above demonstrate how disciplined screening across multiple dimensions can surface compelling opportunities missed by simpler analysis.