General Mills, Inc. (NYSE:GIS) shares are down more than -7.37% this year and recently increased 0.37% or $0.2 to settle at $54.92. Snyder’s-Lance, Inc. (NASDAQ:LNCE), on the other hand, is down -0.26% year to date as of 02/12/2018. It currently trades at $49.95 and has returned 0.20% during the past week.
General Mills, Inc. (NYSE:GIS) and Snyder’s-Lance, Inc. (NASDAQ:LNCE) are the two most active stocks in the Processed & Packaged Goods 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect GIS to grow earnings at a 5.30% annual rate over the next 5 years. Comparatively, LNCE is expected to grow at a 15.10% annual rate. All else equal, LNCE’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. General Mills, Inc. (GIS) has an EBITDA margin of 19.92%. This suggests that GIS underlying business is more profitable GIS’s ROI is 13.80% while LNCE has a ROI of 2.40%. The interpretation is that GIS’s business generates a higher return on investment than LNCE’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. GIS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.95. Comparatively, LNCE’s free cash flow per share was +0.12. On a percent-of-sales basis, GIS’s free cash flow was 3.46% while LNCE converted 0.55% of its revenues into cash flow. This means that, for a given level of sales, GIS is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. GIS has a current ratio of 0.80 compared to 1.60 for LNCE. This means that LNCE can more easily cover its most immediate liabilities over the next twelve months. GIS’s debt-to-equity ratio is 2.30 versus a D/E of 0.62 for LNCE. GIS is therefore the more solvent of the two companies, and has lower financial risk.
GIS trades at a forward P/E of 16.63, a P/B of 7.41, and a P/S of 2.02, compared to a forward P/E of 38.07, a P/B of 2.67, and a P/S of 2.29 for LNCE. 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”. GIS is currently priced at a -6.66% to its one-year price target of 58.84. Comparatively, LNCE is 5.62% relative to its price target of 47.29. This suggests that GIS 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 2.90 for GIS and 2.80 for LNCE, which implies that analysts are more bullish on the outlook for GIS.
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. GIS has a beta of 0.64 and LNCE’s beta is 0.55. LNCE’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. GIS has a short ratio of 8.32 compared to a short interest of 2.29 for LNCE. This implies that the market is currently less bearish on the outlook for LNCE.
Snyder’s-Lance, Inc. (NASDAQ:LNCE) beats General Mills, Inc. (NYSE:GIS) on a total of 7 of the 14 factors compared between the two stocks. LNCE is more profitable, higher liquidity and has lower financial risk. Finally, LNCE has better sentiment signals based on short interest.