Sprint Corporation (NYSE:S) shares are down more than -9.85% this year and recently increased 0.95% or $0.05 to settle at $5.31. Chevron Corporation (NYSE:CVX), on the other hand, is down -9.23% year to date as of 02/14/2018. It currently trades at $113.63 and has returned -1.44% during the past week.
Sprint Corporation (NYSE:S) and Chevron Corporation (NYSE:CVX) are the two most active stocks in the market based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
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 S to grow earnings at a 5.00% annual rate over the next 5 years. Comparatively, CVX is expected to grow at a 75.34% annual rate. All else equal, CVX’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 23.15% for Chevron Corporation (CVX). S’s ROI is 2.20% while CVX has a ROI of -1.40%. The interpretation is that S’s business generates a higher return on investment than CVX’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. S’s free cash flow (“FCF”) per share for the trailing twelve months was -0.05. Comparatively, CVX’s free cash flow per share was -1.49. On a percent-of-sales basis, S’s free cash flow was -0.6% while CVX converted -2% of its revenues into cash flow. This means that, for a given level of sales, S 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. S has a current ratio of 0.90 compared to 1.00 for CVX. This means that CVX can more easily cover its most immediate liabilities over the next twelve months. S’s debt-to-equity ratio is 1.41 versus a D/E of 0.29 for CVX. S is therefore the more solvent of the two companies, and has lower financial risk.
S trades at a P/B of 0.81, and a P/S of 0.66, compared to a forward P/E of 17.93, a P/B of 1.46, and a P/S of 1.59 for CVX. S 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
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. S is currently priced at a -1.85% to its one-year price target of 5.41. Comparatively, CVX is -16.13% relative to its price target of 135.48. This suggests that CVX 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 3.40 for S and 2.10 for CVX, which implies that analysts are more bullish on the outlook for S.
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. S has a beta of 0.51 and CVX’s beta is 1.14. S’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. S has a short ratio of 6.67 compared to a short interest of 3.50 for CVX. This implies that the market is currently less bearish on the outlook for CVX.
Sprint Corporation (NYSE:S) beats Chevron Corporation (NYSE:CVX) on a total of 8 of the 14 factors compared between the two stocks. S is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, S is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, MRK has better sentiment signals based on short interest.