The Mosaic Company (NYSE:MOS) and E. I. du Pont de Nemours and Company (NYSE:DD) are the two most active stocks in the Agricultural Chemicals industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect MOS to grow earnings at a 17.96% annual rate over the next 5 years. Comparatively, DD is expected to grow at a 7.00% annual rate. All else equal, MOS’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. The Mosaic Company (MOS) has an EBITDA margin of 12.3%, compared to an EBITDA margin of 17.17% for E. I. du Pont de Nemours and Company (DD). This suggests that DD underlying business is more profitable. MOS’s ROI is 2.90% while DD has a ROI of 13.00%. The interpretation is that DD’s business generates a higher return on investment than MOS’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. MOS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.06. Comparatively, DD’s free cash flow per share was -3.39. On a percent-of-sales basis, MOS’s free cash flow was 0.29% while DD converted -11.96% of its revenues into cash flow. This means that, for a given level of sales, MOS is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. MOS has a current ratio of 1.80 compared to 1.90 for DD. This means that DD can more easily cover its most immediate liabilities over the next twelve months. MOS’s debt-to-equity ratio is 0.40 versus a D/E of 1.12 for DD. DD is therefore the more solvent of the two companies, and has lower financial risk.
MOS trades at a forward P/E of 17.88, a P/B of 0.71, and a P/S of 0.99, compared to a forward P/E of 19.68, a P/B of 5.85, and a P/S of 2.80 for DD. MOS is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.20 for MOS and 2.20 for DD, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. MOS has a beta of 1.30 and DD’s beta is 1.75. MOS’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. MOS has a short ratio of 4.22 compared to a short interest of 2.80 for DD. This implies that the market is currently less bearish on the outlook for DD.
The Mosaic Company (NYSE:MOS) beats E. I. du Pont de Nemours and Company (NYSE:DD) on a total of 8 of the 13 factors compared between the two stocks. MOS is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, MOS is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, TMUS has better sentiment signals based on short interest.