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How To Value A Stock Using EPS, P/E Ratio And EBITDA

If you want to value a stock’s price, there’s an easy way to do that without having to find a lot of data in the Internet. This time, all the data that we’ll need can be found at COL Financial’s database.

The data that we will be needing is the current share price, EPS (earnings per share), P/E Ratio (price to earnings) and EBITDA (earnings before income, tax, depreciation and amortization).

Here’s how we do it.

Using EPS, P/E Ratio & EBITDA To Value A Stock

I choose the stock JFC for this valuation. I previously valuated this stock using the equity-bond theory and I found it to be overvalued. Now let’s take a 2nd guess but this time using this method. First, we get the P/E Ratio as of today by using the formula below;

P/E Ratio = Share price / EPS

JFC’s closing price today is 188.40 Php and its EPS is 5.03. To get these values, go to Stock, type in JFC and click the Valuations tab. You’ll see the EPS under the Per Share Data area. So moving on let’s compute for the current P/E Ratio;

P/E Ratio = 188.40 / 5.03 = 37.46

We now have the current P/E Ratio, we then use this value to compute the PEG Ratio (price to earnings to growth). The formula for PEG is;

PEG = P/E Ratio / 5-yr EBITDA Growth Rate

The 5-yr EBITDA Growth Rate is computed as;

5-yr EBITDA Growth Rate = {[(Year 5 / Year 1) ^ (1/4)] – 1} x 100

Now we have all the equations we need, let’s put it into action.

Accessing COL Financials database, we find the 5-yr EBITDA values below;

value a stock using eps p/e ratio and ebitda

Fig. 1 EBITDA

5-yr EBITDA Growth Rate = {[(10,098,322,028 / 6,359,320,366) ^ (1/4)] – 1} x 100 = 12.26%

Computing for the 5-yr EBITDA Growth Rate, we have;

Computing for PEG;

PEG = 37.46 / 12.26 = 3.06

Now, how do we interpret this ratio? Always remember that if the P/E Ratio is almost the same as the growth rate, then the stock is valued at a fair price.

This means that a PEG ratio between 0 to 1 means that the stock is undervalued. A ratio that is between 1 and 2 is fairly valued and a ratio that is greater than 2 is overvalued.

Based on the results above, we can assume that the stock is overvalued for now.

Final Thoughts

Take note that to have a better present valuation of the stock’s value, please consider using the twelve trailing month values of the EPS instead of the annual values in COL Financial’s valuations. You can find it in the quarterly financial statements.

You can try to use this in your investments and find out if they are undervalued or not.

Happy investing!

  • August 16, 2015

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  • Xyruz Kastro says:

    Hello, Could you please tell where I can find those EBITDA?

  • Xyruz Kastro says:

    Hello, Could you please tell where I can find those EBITDA values?

  • Heston says:

    Hi,

    Newbie here, I was just wondering about the 5 year ebitda growth rate formula, why I just wondering why you used 1/4? Since there are 5 years that is factored in. Isn’t the 5 year ebitda growth rate formula similar to the cagr formula? So instead of 1/4 it should be 1/5? Thanks

    • Yeah that’s right thanks for correcting. You’ll be needing six figures of EBITDA to get the 5-yr CAGR. Thanks for pointing that out. 🙂

    • I did run this formula again and I realized that it should be really 1/4. The formula should be ‘period – 1’. So instead of 5, it should be really 4 ‘5 – 1’.

      Same is true with the CAGR formula, It should be ‘no. of periods – 1’.

      I hope this is clear though. 🙂

  • Ace says:

    Hello Sir,

    Sir yung EPS 5.03 in JFC was 2014 EPS in COL Financial Valuation Tab.

    P/E Ratio = Current Share price / EPS (previous year)?

    • Hi Ace,

      Kinompute ko to nung 2015. Last year, EPS for 2014 pa lang ang nakaregister sa COL. I used 2014 EPS to estimate P/E for 2015 since wala pa naman EPS na pang 2015.. Mas maganda kung gagamit ka ng P/E (TTM) pero matrabaho kasi magcalculate.

      Sa Bloomberg, may P/E (TTM) na makuha para di ka na mahirapan.

      https://www.bloomberg.com/quote/JFC:PM

      • Ace says:

        Thank you! I just found out your blog last week and I enjoyed reading your blog. It’s very informative especially for those people who are new in investing. God bless!

        • Thanks for the nice compliment. Glad it helped. To keep you updated of new posts and other stuff that I share once in a while, make sure to subscribe in my e-mail list. I wish you luck in your investing journey. 🙂

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