Intel Corporation (NASDAQ:INTC) shares are down more than -1.69% this year and recently increased 2.07% or $0.92 to settle at $45.38. Starbucks Corporation (NASDAQ:SBUX), on the other hand, is down -2.51% year to date as of 02/14/2018. It currently trades at $55.99 and has returned 2.81% during the past week.
Intel Corporation (NASDAQ:INTC) and Starbucks Corporation (NASDAQ:SBUX) 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect INTC to grow earnings at a 9.03% annual rate over the next 5 years. Comparatively, SBUX is expected to grow at a 15.46% annual rate. All else equal, SBUX’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 30.9% for Starbucks Corporation (SBUX). INTC’s ROI is 11.10% while SBUX has a ROI of 28.80%. The interpretation is that SBUX’s business generates a higher return on investment than INTC’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, INTC’s free cash flow was 0% while SBUX converted 4.27% of its revenues into cash flow. This means that, for a given level of sales, SBUX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. INTC has a current ratio of 1.60 compared to 1.00 for SBUX. This means that INTC can more easily cover its most immediate liabilities over the next twelve months. INTC’s debt-to-equity ratio is 0.45 versus a D/E of 0.85 for SBUX. SBUX is therefore the more solvent of the two companies, and has lower financial risk.
INTC trades at a forward P/E of 12.00, a P/B of 3.00, and a P/S of 3.39, compared to a forward P/E of 20.00, a P/B of 13.82, and a P/S of 3.45 for SBUX. INTC 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. INTC is currently priced at a -12.5% to its one-year price target of 51.86. Comparatively, SBUX is -12.99% relative to its price target of 64.35. This suggests that SBUX 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 2.30 for INTC and 2.20 for SBUX, which implies that analysts are more bullish on the outlook for INTC.
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. INTC has a beta of 1.11 and SBUX’s beta is 0.68. SBUX’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. INTC has a short ratio of 3.08 compared to a short interest of 2.55 for SBUX. This implies that the market is currently less bearish on the outlook for SBUX.
Starbucks Corporation (NASDAQ:SBUX) beats Intel Corporation (NASDAQ:INTC) on a total of 8 of the 14 factors compared between the two stocks. SBUX 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, INTC is the cheaper of the two stocks on an earnings, book value and sales basis, SBUX is more undervalued relative to its price target. Finally, SBUX has better sentiment signals based on short interest.