Gold Fields Limited (NYSE:GFI) shares are down more than -4.88% this year and recently decreased -1.92% or -$0.08 to settle at $4.09. Future FinTech Group Inc. (NASDAQ:FTFT), on the other hand, is down -27.10% year to date as of 02/19/2018. It currently trades at $3.04 and has returned 30.47% during the past week.
Gold Fields Limited (NYSE:GFI) and Future FinTech Group Inc. (NASDAQ:FTFT) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity 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 GFI to grow earnings at a 9.10% annual rate over the next 5 years. Comparatively, FTFT is expected to grow at a 15.00% annual rate. All else equal, FTFT’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. GFI’s ROI is 10.50% while FTFT has a ROI of 0.40%. The interpretation is that GFI’s business generates a higher return on investment than FTFT’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. GFI’s free cash flow (“FCF”) per share for the trailing twelve months was +2.28. Comparatively, FTFT’s free cash flow per share was +0.28. On a percent-of-sales basis, GFI’s free cash flow was 68.06% while FTFT converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, GFI 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. GFI has a current ratio of 1.20 compared to 1.20 for FTFT. This means that GFI can more easily cover its most immediate liabilities over the next twelve months. GFI’s debt-to-equity ratio is 0.56 versus a D/E of 0.37 for FTFT. GFI is therefore the more solvent of the two companies, and has lower financial risk.
GFI trades at a forward P/E of 29.21, a P/B of 1.01, and a P/S of 1.21, compared to a P/B of 0.11, and a P/S of 0.84 for FTFT. GFI is the expensive 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. GFI is currently priced at a -10.7% to its one-year price target of 4.58. Comparatively, FTFT is -24% relative to its price target of 4.00. This suggests that FTFT 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 3.00 for GFI and 3.00 for FTFT, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. GFI has a beta of -0.90 and FTFT’s beta is 2.63. GFI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. GFI has a short ratio of 0.87 compared to a short interest of 0.26 for FTFT. This implies that the market is currently less bearish on the outlook for FTFT.
Future FinTech Group Inc. (NASDAQ:FTFT) beats Gold Fields Limited (NYSE:GFI) on a total of 7 of the 14 factors compared between the two stocks. FTFT generates a higher return on investment and has lower financial risk. In terms of valuation, FTFT is the cheaper of the two stocks on an earnings, book value and sales basis, FTFT is more undervalued relative to its price target. Finally, FTFT has better sentiment signals based on short interest.