Weatherford International plc (NYSE:WFT) shares are down more than -34.29% this year and recently decreased -0.72% or -$0.02 to settle at $2.74. ON Semiconductor Corporation (NASDAQ:ON), on the other hand, is up 6.69% year to date as of 02/14/2018. It currently trades at $22.34 and has returned 1.27% during the past week.
Weatherford International plc (NYSE:WFT) and ON Semiconductor Corporation (NASDAQ:ON) 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect WFT to grow earnings at a 2.94% annual rate over the next 5 years. Comparatively, ON is expected to grow at a 14.56% annual rate. All else equal, ON’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. EBITDA margin of 21.67% for ON Semiconductor Corporation (ON). WFT’s ROI is -28.60% while ON has a ROI of 5.90%. The interpretation is that ON’s business generates a higher return on investment than WFT’s.
Cash is king when it comes to investing. On a percent-of-sales basis, WFT’s free cash flow was 0% while ON converted 0% of its revenues into cash flow. This means that, for a given level of sales, WFT 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. WFT has a current ratio of 2.00 compared to 2.00 for ON. This means that WFT can more easily cover its most immediate liabilities over the next twelve months. WFT’s debt-to-equity ratio is 5.96 versus a D/E of 1.33 for ON. WFT is therefore the more solvent of the two companies, and has lower financial risk.
WFT trades at a P/B of 2.04, and a P/S of 0.47, compared to a forward P/E of 11.61, a P/B of 4.26, and a P/S of 1.70 for ON. WFT 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. WFT is currently priced at a -45.09% to its one-year price target of 4.99. Comparatively, ON is -12.22% relative to its price target of 25.45. This suggests that WFT 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 WFT and 2.20 for ON, which implies that analysts are more bullish on the outlook for WFT.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. WFT has a beta of 2.19 and ON’s beta is 2.04. ON’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. WFT has a short ratio of 6.31 compared to a short interest of 2.97 for ON. This implies that the market is currently less bearish on the outlook for ON.
ON Semiconductor Corporation (NASDAQ:ON) beats Weatherford International plc (NYSE:WFT) on a total of 7 of the 14 factors compared between the two stocks. ON higher liquidity, is more profitable, generates a higher return on investment and has lower financial risk. In terms of valuation, WFT is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, ON has better sentiment signals based on short interest.