Earnings

Comparing HP Inc. (HPQ) and NRG Energy, Inc. (NRG)

HP Inc. (NYSE:HPQ) shares are up more than 4.33% this year and recently increased 1.06% or $0.23 to settle at $21.92. NRG Energy, Inc. (NYSE:NRG), on the other hand, is up 7.20% year to date as of 03/30/2018. It currently trades at $30.53 and has returned 0.76% during the past week.

HP Inc. (NYSE:HPQ) and NRG Energy, Inc. (NYSE:NRG) are the two most active stocks in the Diversified Computer Systems industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

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 HPQ to grow earnings at a 9.08% annual rate over the next 5 years. Comparatively, NRG is expected to grow at a 70.48% annual rate. All else equal, NRG’s higher growth rate would imply a greater potential for capital appreciation.

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 EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 4.58% for NRG Energy, Inc. (NRG). HPQ’s ROI is 62.80% while NRG has a ROI of 7.30%. The interpretation is that HPQ’s business generates a higher return on investment than NRG’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. HPQ’s free cash flow (“FCF”) per share for the trailing twelve months was +0.38. Comparatively, NRG’s free cash flow per share was +0.69. On a percent-of-sales basis, HPQ’s free cash flow was 1.2% while NRG converted 2.06% of its revenues into cash flow. This means that, for a given level of sales, NRG is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. HPQ has a current ratio of 0.90 compared to 1.30 for NRG. This means that NRG can more easily cover its most immediate liabilities over the next twelve months.

Valuation

HPQ trades at a forward P/E of 10.50, and a P/S of 0.67, compared to a forward P/E of 9.26, and a P/S of 0.91 for NRG. HPQ 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

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. HPQ is currently priced at a -14.91% to its one-year price target of 25.76. Comparatively, NRG is -12.47% relative to its price target of 34.88. This suggests that HPQ is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. HPQ has a beta of 1.63 and NRG’s beta is 0.85. NRG’s shares are therefore the less volatile of the two stocks.

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. HPQ has a short ratio of 2.88 compared to a short interest of 2.90 for NRG. This implies that the market is currently less bearish on the outlook for HPQ.

Summary

NRG Energy, Inc. (NYSE:NRG) beats HP Inc. (NYSE:HPQ) on a total of 8 of the 13 factors compared between the two stocks. NRG is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, VER has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Comparing The Kroger Co. (KR) and Okta, Inc. (OKTA... The Kroger Co. (NYSE:KR) shares are down more than -14.72% this year and recently increased 1.08% or $0.25 to settle at $23.41. Okta, Inc. (NASDAQ:OKT...
Remark Holdings, Inc. (MARK) vs. Yelp Inc. (YELP):... Remark Holdings, Inc. (NASDAQ:MARK) shares are up more than 45.43% this year and recently increased 7.69% or $1.01 to settle at $14.15. Yelp Inc. (NYS...
Comparing Invesco Ltd. (IVZ) and Franklin Resource...   Invesco Ltd. (NYSE:IVZ) shares are up more than 19.15% this year and recently decreased -0.39% or -$0.14 to settle at $36.15. Franklin Resou...
Comerica Incorporated (CMA) vs. Home Bancshares, I... Comerica Incorporated (NYSE:CMA) shares are up more than 8.10% this year and recently increased 0.58% or $0.54 to settle at $93.84. Home Bancshares, I...
Set Sail With Kimberly-Clark Corporation (KMB), DD... The shares of Kimberly-Clark Corporation have decreased by more than -17.10% this year alone. The shares recently went down by -3.20% or -$3.31 and no...