Inphi Corporation (NYSE:IPHI) shares are down more than -12.38% this year and recently decreased -9.41% or -$3.33 to settle at $32.07. Qorvo, Inc. (NASDAQ:QRVO), on the other hand, is up 2.70% year to date as of 01/19/2018. It currently trades at $68.40 and has returned -0.70% during the past week.
Inphi Corporation (NYSE:IPHI) and Qorvo, Inc. (NASDAQ:QRVO) are the two most active stocks in the Semiconductor – Broad Line 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect IPHI to grow earnings at a 16.00% annual rate over the next 5 years. Comparatively, QRVO is expected to grow at a 13.70% annual rate. All else equal, IPHI’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 32.58% for Qorvo, Inc. (QRVO). IPHI’s ROI is 4.60% while QRVO has a ROI of 0.80%. The interpretation is that IPHI’s business generates a higher return on investment than QRVO’s.
Cash is king when it comes to investing. IPHI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.14. Comparatively, QRVO’s free cash flow per share was +1.16. On a percent-of-sales basis, IPHI’s free cash flow was 0% while QRVO converted 4.86% of its revenues into cash flow. This means that, for a given level of sales, QRVO is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. IPHI has a current ratio of 7.20 compared to 3.80 for QRVO. This means that IPHI can more easily cover its most immediate liabilities over the next twelve months. IPHI’s debt-to-equity ratio is 1.03 versus a D/E of 0.20 for QRVO. IPHI is therefore the more solvent of the two companies, and has lower financial risk.
IPHI trades at a forward P/E of 17.52, a P/B of 3.35, and a P/S of 4.36, compared to a forward P/E of 10.64, a P/B of 1.77, and a P/S of 3.07 for QRVO. IPHI is the expensive 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. IPHI is currently priced at a -28.94% to its one-year price target of 45.13. Comparatively, QRVO is -10% relative to its price target of 76.00. This suggests that IPHI 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 1.90 for IPHI and 2.70 for QRVO, which implies that analysts are more bullish on the outlook for QRVO.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. IPHI has a beta of 1.15 and QRVO’s beta is 0.96. QRVO’s shares are therefore the less volatile of the two stocks.
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. IPHI has a short ratio of 11.31 compared to a short interest of 6.27 for QRVO. This implies that the market is currently less bearish on the outlook for QRVO.
Qorvo, Inc. (NASDAQ:QRVO) beats Inphi Corporation (NYSE:IPHI) on a total of 9 of the 14 factors compared between the two stocks. QRVO is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, QRVO is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, QRVO has better sentiment signals based on short interest.