Mattel, Inc. (NASDAQ:MAT) shares are down more than -16.78% this year and recently decreased -1.31% or -$0.17 to settle at $12.80. ZTO Express (Cayman) Inc. (NYSE:ZTO), on the other hand, is down -3.97% year to date as of 03/21/2018. It currently trades at $15.22 and has returned -0.07% during the past week.
Mattel, Inc. (NASDAQ:MAT) and ZTO Express (Cayman) Inc. (NYSE:ZTO) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 MAT to grow earnings at a 9.87% annual rate over the next 5 years. Comparatively, ZTO is expected to grow at a 1.07% annual rate. All else equal, MAT’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 Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. MAT’s ROI is -22.80% while ZTO has a ROI of 14.20%. The interpretation is that ZTO’s business generates a higher return on investment than MAT’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. MAT’s free cash flow (“FCF”) per share for the trailing twelve months was +1.89. Comparatively, ZTO’s free cash flow per share was -. On a percent-of-sales basis, MAT’s free cash flow was 13.31% while ZTO converted 0% of its revenues into cash flow. This means that, for a given level of sales, MAT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. MAT has a current ratio of 1.90 compared to 3.00 for ZTO. This means that ZTO can more easily cover its most immediate liabilities over the next twelve months. MAT’s debt-to-equity ratio is 2.48 versus a D/E of 0.01 for ZTO. MAT is therefore the more solvent of the two companies, and has lower financial risk.
MAT trades at a forward P/E of 22.46, a P/B of 3.51, and a P/S of 0.90, compared to a forward P/E of 13.69, a P/B of 3.20, and a P/S of 5.22 for ZTO. MAT is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. MAT is currently priced at a -19.8% to its one-year price target of 15.96. Comparatively, ZTO is -19.17% relative to its price target of 18.83. This suggests that MAT 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 2.80 for MAT and 2.10 for ZTO, which implies that analysts are more bullish on the outlook for MAT.
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. MAT has a short ratio of 9.06 compared to a short interest of 6.02 for ZTO. This implies that the market is currently less bearish on the outlook for ZTO.
ZTO Express (Cayman) Inc. (NYSE:ZTO) beats Mattel, Inc. (NASDAQ:MAT) on a total of 8 of the 14 factors compared between the two stocks. ZTO is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, ZTO is the cheaper of the two stocks on an earnings and book value, Finally, ZTO has better sentiment signals based on short interest.