Global

Should You Buy V.F. Corporation (VFC) or Cheniere Energy, Inc. (LNG)?

V.F. Corporation (NYSE:VFC) shares are up more than 5.30% this year and recently increased 0.91% or $0.7 to settle at $77.92. Cheniere Energy, Inc. (NYSE:LNG), on the other hand, is up 5.68% year to date as of 04/16/2018. It currently trades at $56.90 and has returned 5.18% during the past week.

V.F. Corporation (NYSE:VFC) and Cheniere Energy, Inc. (NYSE:LNG) are the two most active stocks in the Textile – Apparel Clothing industry 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.

Growth

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect VFC to grow earnings at a 11.34% annual rate over the next 5 years. Comparatively, LNG is expected to grow at a -0.55% annual rate. All else equal, VFC’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 31.03% for Cheniere Energy, Inc. (LNG). VFC’s ROI is 19.20% while LNG has a ROI of 7.20%. The interpretation is that VFC’s business generates a higher return on investment than LNG’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. VFC’s free cash flow (“FCF”) per share for the trailing twelve months was +3.10. Comparatively, LNG’s free cash flow per share was -0.50. On a percent-of-sales basis, VFC’s free cash flow was 10.41% while LNG converted -2.12% of its revenues into cash flow. This means that, for a given level of sales, VFC 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. VFC has a current ratio of 1.60 compared to 2.70 for LNG. This means that LNG can more easily cover its most immediate liabilities over the next twelve months.

Valuation

VFC trades at a forward P/E of 22.44, a P/B of 8.26, and a P/S of 2.63, compared to a forward P/E of 33.75, and a P/S of 2.43 for LNG. VFC is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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”. VFC is currently priced at a -4.54% to its one-year price target of 81.63. Comparatively, LNG is -11.09% relative to its price target of 64.00. This suggests that LNG is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. VFC has a beta of 0.94 and LNG’s beta is 1.55. VFC’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. VFC has a short ratio of 3.08 compared to a short interest of 6.23 for LNG. This implies that the market is currently less bearish on the outlook for VFC.

Summary

Cheniere Energy, Inc. (NYSE:LNG) beats V.F. Corporation (NYSE:VFC) on a total of 7 of the 14 factors compared between the two stocks. LNG is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, LNG is the cheaper of the two stocks on book value and sales basis, LNG is more undervalued relative to its price target.

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