Earnings

Uncovering the next great stocks: Xerox Corporation (XRX), Capital Senior Living Corporation (CSU)

The shares of Xerox Corporation have decreased by more than -0.31% this year alone. The shares recently went up by 3.16% or $0.89 and now trades at $29.06. The shares of Capital Senior Living Corporation (NYSE:CSU), has slumped by -18.16% year to date as of 04/16/2018. The shares currently trade at $11.04 and have been able to report a change of 4.94% over the past one week.

The stock of Xerox Corporation and Capital Senior Living Corporation 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: 2.00% versus 58.10%

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 XRX will grow it’s earning at a 2.00% annual rate in the next 5 years. This is in contrast to CSU which will have a positive growth at a 58.10% annual rate. This means that the higher growth rate of CSU 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. XRX has an EBITDA margin of 10.67%, this implies that the underlying business of CSU is more profitable. The ROI of XRX is 5.70% while that of CSU is -2.30%. These figures suggest that XRX ventures generate a higher ROI than that of CSU.

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, XRX’s free cash flow per share is a negative -1.09.

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 current ratio for XRX is 1.90 and that of CSU is 0.70. This implies that it is easier for XRX to cover its immediate obligations over the next 12 months than CSU. The debt ratio of XRX is 1.05 compared to 12.56 for CSU. CSU can be able to settle its long-term debts and thus is a lower financial risk than XRX.

Valuation

XRX currently trades at a forward P/E of 7.84, a P/B of 1.41, and a P/S of 0.72 while CSU trades at a P/B of 4.06, and a P/S of 0.72. This means that looking at the earnings, book values and sales basis, XRX 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 XRX is currently at a -27.04% to its one-year price target of 39.83. Looking at its rival pricing, CSU is at a -31.85% relative to its price target of 16.20.

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), XRX is given a 2.20 while 1.60 placed for CSU. This means that analysts are more bullish on the outlook for XRX 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 XRX is 1.63 while that of CSU is just 8.58. This means that analysts are more bullish on the forecast for XRX stock.

Conclusion

The stock of Xerox Corporation defeats that of Capital Senior Living Corporation when the two are compared, with XRX taking 5 out of the total factors that were been considered. XRX 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, XRX is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for XRX is better on when it is viewed on short interest.

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