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Reliable Long-term Trend to Profit From: Lowe’s Companies, Inc. (LOW), NMI Holdings, Inc. (NMIH)

The shares of Lowe’s Companies, Inc. have decreased by more than -5.66% this year alone. The shares recently went up by 0.46% or $0.4 and now trades at $87.68. The shares of NMI Holdings, Inc. (NASDAQ:NMIH), has jumped by 6.18% year to date as of 03/12/2018. The shares currently trade at $18.05 and have been able to report a change of -7.79% over the past one week.

The stock of Lowe’s Companies, Inc. and NMI Holdings, Inc. were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 16.62% versus 64.89% 

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that LOW will grow it’s earning at a 16.62% annual rate in the next 5 years. This is in contrast to NMIH which will have a positive growth at a 64.89% annual rate. This means that the higher growth rate of NMIH implies a greater potential for capital appreciation over the years.



Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. LOW has an EBITDA margin of 10.45%, this implies that the underlying business of NMIH is more profitable. The ROI of LOW is 16.90% while that of NMIH is 7.50%. These figures suggest that LOW ventures generate a higher ROI than that of NMIH.

Cash Flow 




The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, LOW’s free cash flow per share is a negative -0.52.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The debt ratio of LOW is 2.79 compared to 0.28 for NMIH. LOW can be able to settle its long-term debts and thus is a lower financial risk than NMIH.

Valuation

LOW currently trades at a forward P/E of 14.23, a P/B of 12.69, and a P/S of 1.06 while NMIH trades at a forward P/E of 8.74, a P/B of 2.14, and a P/S of 5.95. This means that looking at the earnings, book values and sales basis, LOW is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of LOW is currently at a -17.07% to its one-year price target of 105.73. Looking at its rival pricing, NMIH is at a -21.76% relative to its price target of 23.07. This figure implies that over the next one year, NMIH is a better investment.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), LOW is given a 2.00 while 1.50 placed for NMIH. This means that analysts are more bullish on the outlook for LOW stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for LOW is 1.13 while that of NMIH is just 3.02. This means that analysts are more bullish on the forecast for LOW stock.

Conclusion

The stock of Lowe’s Companies, Inc. defeats that of NMI Holdings, Inc. when the two are compared, with LOW taking 4 out of the total factors that were been considered. LOW happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, LOW is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for LOW is better on when it is viewed on short interest.

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