I’m in ER and my analyst uses EV-to-ROIC as a way to determine relative value of stocks. I understand it from a broad level but I’m always trying to derive it. I’d love to hear some opinions much smarter than mine. What do you guys think?
Are you sure you have that right? I could imagine someone comparing companies based on their EV/EBITDA multiples and ROIC. So company A trades on a multiple of 10x whereas company B trades on 8x. But company A has a ROIC of 15% whereas company B only has a ROIC of 10%, so actually you can make a case that company A is better value.
EV/ROIC as a ratio doesn’t seem to make much sense to me unless I’m missing something?
^ I agree with Carson. I can’t think of a reason EV/ROIC makes sense. #/% just seems odd to me.
Interesting, when I read this, I somehow assumed that it was EV / IC, because that sounded like it could be a sensible ratio, because IC strips out the intangible stuff and it ends up being a bit like P/B, just with market value instead of book value for the denominator.
However, it’s ROIC and not IC, which is a strange one.