Gannett Co., Inc. (NYSE:GCI), on the other hand, is down -5.44% year to date as of 02/12/2018. It currently trades at $10.96 and has returned 3.59% during the past week.
The New York Times Company (NYSE:NYT) and Gannett Co., Inc. (NYSE:GCI) are the two most active stocks in the Publishing – Newspapers 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.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect NYT to grow earnings at a 17.50% annual rate over the next 5 years.
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 6.79% for Gannett Co., Inc. (GCI). NYT’s ROI is 8.90% while GCI has a ROI of 5.20%. The interpretation is that NYT’s business generates a higher return on investment than GCI’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, NYT’s free cash flow was 0% while GCI converted -0.04% of its revenues into cash flow. This means that, for a given level of sales, NYT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. NYT has a current ratio of 1.80 compared to 1.10 for GCI. This means that NYT can more easily cover its most immediate liabilities over the next twelve months. NYT’s debt-to-equity ratio is 0.00 versus a D/E of 0.43 for GCI. GCI is therefore the more solvent of the two companies, and has lower financial risk.
NYT trades at a forward P/E of 22.05, a P/B of 4.26, and a P/S of 2.44, compared to a forward P/E of 12.67, a P/B of 1.44, and a P/S of 0.39 for GCI. NYT 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. NYT is currently priced at a 37.71% to its one-year price target of 17.50. Comparatively, GCI is -6.72% relative to its price target of 11.75. This suggests that GCI 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 3.20 for NYT and 2.70 for GCI, which implies that analysts are more bullish on the outlook for NYT.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. NYT has a short ratio of 6.02 compared to a short interest of 9.54 for GCI. This implies that the market is currently less bearish on the outlook for NYT.
The New York Times Company (NYSE:NYT) beats Gannett Co., Inc. (NYSE:GCI) on a total of 8 of the 14 factors compared between the two stocks. NYT is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, NYT has better sentiment signals based on short interest.