CNX Resources Corporation (NYSE:CNX) shares are up more than 1.09% this year and recently increased 1.58% or $0.23 to settle at $14.79. Invesco Ltd. (NYSE:IVZ), on the other hand, is down -9.17% year to date as of 02/15/2018. It currently trades at $33.19 and has returned 3.98% during the past week.
CNX Resources Corporation (NYSE:CNX) and Invesco Ltd. (NYSE:IVZ) are the two most active stocks in the market based on recent trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
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. Analysts expect CNX to grow earnings at a 35.70% annual rate over the next 5 years. Comparatively, IVZ is expected to grow at a 15.87% annual rate. All else equal, CNX’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 31% for Invesco Ltd. (IVZ). CNX’s ROI is 1.00% while IVZ has a ROI of 6.00%. The interpretation is that IVZ’s business generates a higher return on investment than CNX’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, CNX’s free cash flow was 0% while IVZ converted 0% of its revenues into cash flow. This means that, for a given level of sales, CNX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
CNX’s debt-to-equity ratio is 0.57 versus a D/E of 0.77 for IVZ. IVZ is therefore the more solvent of the two companies, and has lower financial risk.
CNX trades at a forward P/E of 28.83, a P/B of 0.85, and a P/S of 1.45, compared to a forward P/E of 9.84, a P/B of 1.64, and a P/S of 2.58 for IVZ. 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. CNX is currently priced at a -18.51% to its one-year price target of 18.15. Comparatively, IVZ is -20.29% relative to its price target of 41.64. This suggests that IVZ 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 CNX and 2.30 for IVZ, which implies that analysts are equally bullish on their outlook for the two stocks.
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. CNX has a beta of 1.52 and IVZ’s beta is 1.65. CNX’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. CNX has a short ratio of 2.55 compared to a short interest of 2.56 for IVZ. This implies that the market is currently less bearish on the outlook for CNX.
CNX Resources Corporation (NYSE:CNX) beats Invesco Ltd. (NYSE:IVZ) on a total of 7 of the 14 factors compared between the two stocks. CNX is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, CNX is the cheaper of the two stocks on book value and sales basis, Finally, CNX has better sentiment signals based on short interest.