CNX Resources Corporation (NYSE:CNX) shares are up more than 17.02% this year and recently decreased -2.45% or -$0.43 to settle at $17.12. GDS Holdings Limited (NASDAQ:GDS), on the other hand, is up 27.61% year to date as of 03/12/2018. It currently trades at $28.75 and has returned 16.87% during the past week.
CNX Resources Corporation (NYSE:CNX) and GDS Holdings Limited (NASDAQ:GDS) are the two most active stocks in the market based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
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.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use Return on Investment (ROI) to measure this. CNX’s ROI is 1.00% while GDS has a ROI of -0.50%. The interpretation is that CNX’s business generates a higher return on investment than GDS’s.
Cash is king when it comes to investing. CNX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, GDS’s free cash flow per share was -0.77. On a percent-of-sales basis, CNX’s free cash flow was -0.46% while GDS converted -0.05% of its revenues into cash flow. This means that, for a given level of sales, GDS 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. CNX has a current ratio of 1.90 compared to 0.90 for GDS. This means that CNX can more easily cover its most immediate liabilities over the next twelve months. CNX’s debt-to-equity ratio is 0.57 versus a D/E of 2.10 for GDS. GDS is therefore the more solvent of the two companies, and has lower financial risk.
CNX trades at a forward P/E of 23.94, a P/B of 1.00, and a P/S of 3.31, compared to a P/B of 6.14, and a P/S of 15.23 for GDS. 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 -16.04% to its one-year price target of 20.39. Comparatively, GDS is 29.04% relative to its price target of 22.28. This suggests that CNX 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 2.00 for CNX and 2.40 for GDS, which implies that analysts are more bullish on the outlook for GDS.
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.CNX has a short ratio of 3.92 compared to a short interest of 2.07 for GDS. This implies that the market is currently less bearish on the outlook for GDS.
CNX Resources Corporation (NYSE:CNX) beats GDS Holdings Limited (NASDAQ:GDS) on a total of 9 of the 14 factors compared between the two stocks. CNX is growing fastly, generates a higher return on investment, has higher cash flow per share, 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, CNX is more undervalued relative to its price target. Finally, MOS has better sentiment signals based on short interest.