Cleveland-Cliffs Inc. (NYSE:CLF) shares are up more than 1.53% this year and recently increased 3.24% or $0.23 to settle at $7.32. Celgene Corporation (NASDAQ:CELG), on the other hand, is down -9.55% year to date as of 02/14/2018. It currently trades at $94.39 and has returned -0.81% during the past week.
Cleveland-Cliffs Inc. (NYSE:CLF) and Celgene Corporation (NASDAQ:CELG) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, CELG is expected to grow at a 19.70% annual rate. All else equal, CELG’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 42.64% for Celgene Corporation (CELG). CLF’s ROI is 59.00% while CELG has a ROI of 21.20%. The interpretation is that CLF’s business generates a higher return on investment than CELG’s.
If there’s one thing investors care more about than earnings, it’s cash flow. CLF’s free cash flow (“FCF”) per share for the trailing twelve months was +0.19. Comparatively, CELG’s free cash flow per share was +2.05. On a percent-of-sales basis, CLF’s free cash flow was 2.42% while CELG converted 11.86% of its revenues into cash flow. This means that, for a given level of sales, CELG 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. CLF has a current ratio of 1.90 compared to 5.00 for CELG. This means that CELG can more easily cover its most immediate liabilities over the next twelve months.
CLF trades at a forward P/E of 8.35, and a P/S of 0.93, compared to a forward P/E of 9.18, a P/B of 10.55, and a P/S of 5.62 for CELG. CLF 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CLF is currently priced at a -9.96% to its one-year price target of 8.13. Comparatively, CELG is -24.7% relative to its price target of 125.35. This suggests that CELG 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 2.70 for CLF and 2.20 for CELG, which implies that analysts are more bullish on the outlook for CLF.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CLF has a beta of 1.36 and CELG’s beta is 1.44. CLF’s shares are therefore the less volatile of the two stocks.
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. CLF has a short ratio of 2.40 compared to a short interest of 2.03 for CELG. This implies that the market is currently less bearish on the outlook for CELG.
Celgene Corporation (NASDAQ:CELG) beats Cleveland-Cliffs Inc. (NYSE:CLF) on a total of 8 of the 14 factors compared between the two stocks. CELG generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, CLF is the cheaper of the two stocks on an earnings, book value and sales basis, CELG is more undervalued relative to its price target. Finally, CELG has better sentiment signals based on short interest.