Sibanye Gold Limited (NYSE:SBGL) shares are down more than -18.42% this year and recently decreased -1.90% or -$0.08 to settle at $4.12. United Technologies Corporation (NYSE:UTX), on the other hand, is up 3.08% year to date as of 03/12/2018. It currently trades at $131.50 and has returned -0.16% during the past week.
Sibanye Gold Limited (NYSE:SBGL) and United Technologies Corporation (NYSE:UTX) 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect SBGL to grow earnings at a 1.30% annual rate over the next 5 years. Comparatively, UTX is expected to grow at a 7.30% annual rate. All else equal, UTX’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 18.07% for United Technologies Corporation (UTX). SBGL’s ROI is 18.20% while UTX has a ROI of 11.40%. The interpretation is that SBGL’s business generates a higher return on investment than UTX’s.
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, SBGL’s free cash flow was 0% while UTX converted 1.99% of its revenues into cash flow. This means that, for a given level of sales, UTX 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. SBGL has a current ratio of 1.00 compared to 1.30 for UTX. This means that UTX can more easily cover its most immediate liabilities over the next twelve months. SBGL’s debt-to-equity ratio is 1.24 versus a D/E of 0.93 for UTX. SBGL is therefore the more solvent of the two companies, and has lower financial risk.
SBGL trades at a forward P/E of 4.34, a P/B of 0.76, and a P/S of 0.57, compared to a forward P/E of 16.77, a P/B of 3.50, and a P/S of 1.72 for UTX. SBGL 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. SBGL is currently priced at a -21.52% to its one-year price target of 5.25. Comparatively, UTX is -11.5% relative to its price target of 148.59. This suggests that SBGL 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 SBGL and 2.30 for UTX, which implies that analysts are more bullish on the outlook for SBGL.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. SBGL has a beta of 0.00 and UTX’s beta is 1.05. SBGL’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. SBGL has a short ratio of 4.74 compared to a short interest of 3.43 for UTX. This implies that the market is currently less bearish on the outlook for UTX.
United Technologies Corporation (NYSE:UTX) beats Sibanye Gold Limited (NYSE:SBGL) on a total of 8 of the 14 factors compared between the two stocks. UTX generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, SBGL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, UTX has better sentiment signals based on short interest.