Corning Incorporated (NYSE:GLW) shares are down more than -7.72% this year and recently increased 0.96% or $0.28 to settle at $29.52. PulteGroup, Inc. (NYSE:PHM), on the other hand, is down -11.40% year to date as of 02/14/2018. It currently trades at $29.46 and has returned -1.50% during the past week.
Corning Incorporated (NYSE:GLW) and PulteGroup, Inc. (NYSE:PHM) are the two most active stocks in the market 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 GLW to grow earnings at a 9.58% annual rate over the next 5 years. Comparatively, PHM is expected to grow at a 26.26% annual rate. All else equal, PHM’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 11.55% for PulteGroup, Inc. (PHM). GLW’s ROI is 7.20% while PHM has a ROI of 5.90%. The interpretation is that GLW’s business generates a higher return on investment than PHM’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. GLW’s free cash flow (“FCF”) per share for the trailing twelve months was +0.20. Comparatively, PHM’s free cash flow per share was +1.28. On a percent-of-sales basis, GLW’s free cash flow was 1.72% while PHM converted 4.28% of its revenues into cash flow. This means that, for a given level of sales, PHM is able to generate more free cash flow for investors.
Liquidity and Financial Risk
GLW’s debt-to-equity ratio is 0.31 versus a D/E of 0.83 for PHM. PHM is therefore the more solvent of the two companies, and has lower financial risk.
GLW trades at a forward P/E of 15.16, a P/B of 1.74, and a P/S of 2.58, compared to a forward P/E of 8.39, a P/B of 2.07, and a P/S of 1.01 for PHM. GLW is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. GLW is currently priced at a -13.38% to its one-year price target of 34.08. Comparatively, PHM is -17.59% relative to its price target of 35.75. This suggests that PHM 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 2.40 for GLW and 2.70 for PHM, which implies that analysts are more bullish on the outlook for PHM.
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. GLW has a beta of 1.29 and PHM’s beta is 1.05. PHM’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.GLW has a short ratio of 4.21 compared to a short interest of 3.25 for PHM. This implies that the market is currently less bearish on the outlook for PHM.
PulteGroup, Inc. (NYSE:PHM) beats Corning Incorporated (NYSE:GLW) on a total of 8 of the 14 factors compared between the two stocks. PHM is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, PHM is the cheaper of the two stocks on an earnings and sales basis, PHM is more undervalued relative to its price target. Finally, PHM has better sentiment signals based on short interest.