Thursday, June 12, 2008

Enterprise Value As A Starting Point For Finding Bargain Stocks

The American Association of Individual Investors website contains a number of useful predefined stock screens. The most recent issue of the American Association of Individual Investors' AAII Journal contained an article covering one of the screens that can be used as a starting point to finding 'out of favor stocks.' The focus of the article is to use enterprise value to EBITDA as a starting point for screening for bargain stocks. The article notes:
...The enterprise value is calculated by adding market capitalization, preferred stock, and total debt and reducing this total by the amount of cash held by the firm. Debt and preferred stock is added because the acquirer must shoulder the cost of assuming the obligations of the firm. Cash is subtracted because once you acquire the firm, it becomes yours. The enterprise value to EBITDA ratio relates a firm’s takeover cost to its earnings potential. The lower the ratio, the more attractive the firm...
Below is a list of 11 of the 30 companies AAII uncovered in the screen.


Using Enterprise Value to Locate Bargains ($)
AAII Journal
By: John Bajkowski, AAII Vice President, Sr. Financial Analyst
June 2008

1 comment :

Anonymous said...

I am a member of the American Association of Individual Investors and I can't speak highly enough of the organization. They provide unbiased investment advice and guidance for a cost of only $29 each year!