Corning Incorporated (NYSE:GLW) shares are up more than 5.53% this year and recently increased 1.29% or $0.43 to settle at $33.76. Amphenol Corporation (NYSE:APH), on the other hand, is up 3.41% year to date as of 01/11/2018. It currently trades at $90.79 and has returned 2.44% during the past week.
Corning Incorporated (NYSE:GLW) and Amphenol Corporation (NYSE:APH) are the two most active stocks in the Diversified Electronics 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.
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 GLW to grow earnings at a 8.14% annual rate over the next 5 years. Comparatively, APH is expected to grow at a 10.47% annual rate. All else equal, APH’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 23.9% for Amphenol Corporation (APH). GLW’s ROI is 7.20% while APH has a ROI of 13.40%. The interpretation is that APH’s business generates a higher return on investment than GLW’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. GLW’s free cash flow (“FCF”) per share for the trailing twelve months was +0.00. Comparatively, APH’s free cash flow per share was +0.30. On a percent-of-sales basis, GLW’s free cash flow was 0% while APH converted 1.46% of its revenues into cash flow. This means that, for a given level of sales, APH is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. GLW has a current ratio of 2.70 compared to 3.00 for APH. This means that APH can more easily cover its most immediate liabilities over the next twelve months. GLW’s debt-to-equity ratio is 0.31 versus a D/E of 0.88 for APH. APH is therefore the more solvent of the two companies, and has lower financial risk.
GLW trades at a forward P/E of 18.69, a P/B of 1.98, and a P/S of 2.96, compared to a forward P/E of 26.32, a P/B of 6.81, and a P/S of 4.12 for APH. GLW 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. GLW is currently priced at a 3.62% to its one-year price target of 32.58. Comparatively, APH is -2.9% relative to its price target of 93.50. This suggests that APH 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 2.40 for GLW and 2.10 for APH, which implies that analysts are more bullish on the outlook for GLW.
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. GLW has a beta of 1.45 and APH’s beta is 0.81. APH’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. GLW has a short ratio of 5.23 compared to a short interest of 3.95 for APH. This implies that the market is currently less bearish on the outlook for APH.
Amphenol Corporation (NYSE:APH) beats Corning Incorporated (NYSE:GLW) on a total of 9 of the 14 factors compared between the two stocks. APH is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, GLW is the cheaper of the two stocks on an earnings, book value and sales basis, APH is more undervalued relative to its price target. Finally, APH has better sentiment signals based on short interest.