Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) shares are up more than 23.23% this year and recently increased 1.68% or $0.21 to settle at $12.68. BlackBerry Limited (NYSE:BB), on the other hand, is up 8.33% year to date as of 02/14/2018. It currently trades at $12.10 and has returned 2.98% during the past week.
Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) and BlackBerry Limited (NYSE:BB) 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.
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, BB is expected to grow at a -9.88% annual rate. All else equal, PBR’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 Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. PBR’s ROI is 2.30% while BB has a ROI of -44.50%. The interpretation is that PBR’s business generates a higher return on investment than BB’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. PBR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.87. Comparatively, BB’s free cash flow per share was -0.05. On a percent-of-sales basis, PBR’s free cash flow was 6.97% while BB converted -2.05% of its revenues into cash flow. This means that, for a given level of sales, PBR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. PBR has a current ratio of 2.00 compared to 4.30 for BB. This means that BB can more easily cover its most immediate liabilities over the next twelve months. PBR’s debt-to-equity ratio is 1.36 versus a D/E of 0.00 for BB. PBR is therefore the more solvent of the two companies, and has lower financial risk.
PBR trades at a forward P/E of 12.29, a P/B of 1.04, and a P/S of 0.96, compared to a forward P/E of 151.25, a P/B of 2.58, and a P/S of 6.51 for BB. PBR 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. PBR is currently priced at a 0.48% to its one-year price target of 12.62. Comparatively, BB is 5.58% relative to its price target of 11.46. This suggests that PBR 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 PBR and 2.90 for BB, which implies that analysts are more bullish on the outlook for BB.
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. PBR has a beta of 2.44 and BB’s beta is 1.13. BB’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.PBR has a short ratio of 2.83 compared to a short interest of 7.37 for BB. This implies that the market is currently less bearish on the outlook for PBR.
Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) beats BlackBerry Limited (NYSE:BB) on a total of 10 of the 14 factors compared between the two stocks. PBR is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, PBR is the cheaper of the two stocks on an earnings, book value and sales basis, PBR is more undervalued relative to its price target. Finally, PBR has better sentiment signals based on short interest.