Why Smart Investors Are Overlooking These 5 Undervalued Stocks With Strong Fundamentals

Most retail investors stick to the same old valuation playbook: slapping a price-to-earnings (P/E) multiple on a stock and calling it a day. But here’s the problem—P/E tells only half the story. It ignores debt, can’t value loss-making companies, and gets easily manipulated by accounting tricks.

What if there’s a better way to spot truly undervalued stocks? Enter EV-to-EBITDA, a metric that shows you the real picture of what you’re paying for a company’s actual earning power.

The Case for EV-to-EBITDA Over Traditional P/E

Think of EV-to-EBITDA as the enterprise value formula that actually works. Here’s why it matters:

Enterprise value captures what a company is truly worth—market cap plus debt minus cash. EBITDA strips away the accounting noise (depreciation, amortization, taxes, interest) to show real operational profitability. Lower ratio = cheaper valuation.

Unlike P/E, this metric accounts for a company’s debt load, making it perfect for identifying acquisition targets or heavily leveraged businesses trading below their potential. It also works for profitable companies that happen to be in a loss-making year, a blind spot P/E investors constantly miss.

The catch? EV-to-EBITDA varies wildly across industries, so comparing a fintech startup to an industrial manufacturer is pointless. Use it alongside P/B, P/S, and earnings growth rates for a complete picture.

Five Hidden Gems Passing the Value Screen

Here’s what we screened for: lower-than-industry EV-to-EBITDA ratios, solid P/E and price-to-book multiples, forecast earnings growth beating the median, Zacks Rank #1 or #2, Value Score of A or B, and daily trading volume above 50,000 shares.

Out of 16 candidates, these five stood out:

Plains GP Holdings (PAGP) — Transportation, storage and marketing of crude and refined products. This Rank #1 stock expects 27% earnings growth in 2026, with consensus estimates revised up 19.7% in the past two months. Low leverage concerns here, and the EV-to-EBITDA multiple screams value.

DNOW Inc (DNOW) — A global energy and industrial distribution powerhouse. Another Rank #1 name with solid fundamentals. Watch for 18.5% expected earnings growth and a 2.1% upward estimate revision over 60 days. The enterprise value-to-EBITDA tells us this stock hasn’t caught the Street’s attention yet.

Gibraltar Industries (ROCK) — Industrial and building products manufacturer. Rank #2 status with 11% forecast growth for 2026. Modest upside on estimates (1.5%), but the valuation remains attractive on a cashflow basis.

Miller Industries (MLR) — Towing and recovery equipment leader. The surprise standout here: 139.5% expected earnings growth for 2026, with consensus bumped 19.7% higher recently. Rank #2, but this growth trajectory combined with a low enterprise value-to-EBITDA makes it worthy of attention.

Sally Beauty Holdings (SBH) — Professional beauty supplies retailer and distributor. Rank #2, expecting 8.4% earnings growth (fiscal 2026) with estimates up 2.5%. Conservative pick, but the valuation remains compelling.

The Bottom Line

P/E ratios are easy, which is why everyone uses them. But easy doesn’t beat the market. These five stocks aren’t just cheap on traditional metrics—they’re undervalued when you measure what you’re actually paying for operational earnings, accounting for the full capital structure.

Zacks’ top strategies have averaged 48-57% annual returns since 2000, crushing the S&P 500’s 7.7% pace. The common thread? They look beyond the headlines and use proper valuation discipline. EV-to-EBITDA, combined with earnings momentum, is part of that edge.