3 Comments
 

Depends mostly on other factors: industry, dividend policy, price of stock, ...

Do be honest I am not even sure EV ratios are used for stock investment. Though I might be wrong about that.

'Oh, yeah, that's right. That's what's it's all about, all right. But talkin' about it and bein' it, that's two different things.'
 
Best Response

It depends. If EV/ EBITDA are the same for the two firms, and given that no other information is available, it is probably reasonable to assume that they are in the same industry. for simplicity, say both have the same EBITDA (say 100) and the same EV (say 500). However, if the revenue for one is 500 (EV/sales of 1) and the other is 250 (EV/sales of 2) then it is apparent that the one with 250 has a much higher EBITDA margin. seems more profitable and a more likely candidate I would like to buy. However, one has to see that the higher EBITDA margin and the higher EV/sales are in line (say with the other industry stocks) and that the stock is not majorly overvalued (vis-a-vis sector average)

If the companies are in different sectors, then one needs to see what the relevant sector averages are, and much more difficult to make a clear cut decision based on just this information available

 

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