IXYS Corporation (NASDAQ:IXYS) shares are up more than 105.46% this year and recently increased 0.20% or $0.05 to settle at $24.45. Altair Engineering Inc. (NASDAQ:ALTR), on the other hand, is up 35.23% year to date as of 11/20/2017. It currently trades at $24.76 and has returned 14.00% during the past week.
IXYS Corporation (NASDAQ:IXYS) and Altair Engineering Inc. (NASDAQ:ALTR) are the two most active stocks in the Semiconductor – Specialized industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect IXYS to grow earnings at a 17.00% annual rate over the next 5 years. Comparatively, ALTR is expected to grow at a 6.00% annual rate. All else equal, IXYS’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 14.12% for Altair Engineering Inc. (ALTR). IXYS’s ROI is 5.70% while ALTR has a ROI of 23.60%. The interpretation is that ALTR’s business generates a higher return on investment than IXYS’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. IXYS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.09. Comparatively, ALTR’s free cash flow per share was +0.23.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. IXYS has a current ratio of 8.00 compared to 0.60 for ALTR. This means that IXYS can more easily cover its most immediate liabilities over the next twelve months.
IXYS trades at a forward P/E of 25.21, a P/B of 2.46, and a P/S of 2.39, compared to a P/S of 4.64 for ALTR. IXYS is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. IXYS is currently priced at a 6.3% to its one-year price target of 23.00. Comparatively, ALTR is -51.15% relative to its price target of 50.69. This suggests that ALTR is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.00 for IXYS and 3.10 for ALTR, which implies that analysts are more bullish on the outlook for ALTR.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. IXYS has a short ratio of 0.43 compared to a short interest of 6.68 for ALTR. This implies that the market is currently less bearish on the outlook for IXYS.
Altair Engineering Inc. (NASDAQ:ALTR) beats IXYS Corporation (NASDAQ:IXYS) on a total of 8 of the 13 factors compared between the two stocks. ALTR is growing fastly, generates a higher return on investment, has higher cash flow per share and has lower financial risk. In terms of valuation, ALTR is the cheaper of the two stocks on an earnings and book value, ALTR is more undervalued relative to its price target. Finally, AMBA has better sentiment signals based on short interest.