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Which of these 2 stocks can turn out to be absolute gem? – Chesapeake Energy Corporation (CHK), Viacom, Inc. (VIAB)

The shares of Chesapeake Energy Corporation have decreased by more than -44.73% this year alone. The shares recently went down by -3.00% or -$0.12 and now trades at $3.88. The shares of Viacom, Inc. (NASDAQ:VIAB), has slumped by -11.74% year to date as of 12/27/2017. The shares currently trade at $30.98 and have been able to report a change of 0.16% over the past one week.

The stock of Chesapeake Energy Corporation and Viacom, Inc. were two of the most active stocks on Wedday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 5.00% versus 5.76%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that CHK will grow it’s earning at a 5.00% annual rate in the next 5 years. This is in contrast to VIAB which will have a positive growth at a 5.76% annual rate. This means that the higher growth rate of VIAB implies a greater potential for capital appreciation over the years.



Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. The ROI of CHK is -56.90% while that of VIAB is 14.50%. These figures suggest that VIAB ventures generate a higher ROI than that of CHK.

Cash Flow 




The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, CHK’s free cash flow per share is a positive 3, while that of VIAB is positive 6.64.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for CHK is 0.50 and that of VIAB is 1.50. This implies that it is easier for CHK to cover its immediate obligations over the next 12 months than VIAB.

Valuation

CHK currently trades at a forward P/E of 5.07, and a P/S of 0.39 while VIAB trades at a forward P/E of 8.03, a P/B of 2.07, and a P/S of 0.94. This means that looking at the earnings, book values and sales basis, CHK is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of CHK is currently at a -13.97% to its one-year price target of 4.51. Looking at its rival pricing, VIAB is at a 2.01% relative to its price target of 30.37. This figure implies that over the next one year, VIAB is a better investment.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), CHK is given a 3.10 while 2.80 placed for VIAB. This means that analysts are more bullish on the outlook for CHK stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for CHK is 6.76 while that of VIAB is just 4.83. This means that analysts are more bullish on the forecast for VIAB stock.

Conclusion

The stock of Chesapeake Energy Corporation defeats that of Viacom, Inc. when the two are compared, with CHK taking 5 out of the total factors that were been considered. CHK happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, CHK is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for CHK is better on when it is viewed on short interest.

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