Earnings

Which is more compelling pick right now? – AK Steel Holding Corporation (AKS), PulteGroup, Inc. (PHM)

The shares of AK Steel Holding Corporation have decreased by more than -22.61% this year alone. The shares recently went down by -1.35% or -$0.06 and now trades at $4.38. The shares of PulteGroup, Inc. (NYSE:PHM), has slumped by -7.49% year to date as of 05/09/2018. The shares currently trade at $30.76 and have been able to report a change of 0.65% over the past one week.

The stock of AK Steel Holding Corporation and PulteGroup, Inc. were two of the most active stocks on Wednesday. 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: 22.14% versus 43.26%

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 AKS will grow it’s earning at a 22.14% annual rate in the next 5 years. This is in contrast to PHM which will have a positive growth at a 43.26% annual rate. This means that the higher growth rate of PHM 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. AKS has an EBITDA margin of 9.44%, this implies that the underlying business of PHM is more profitable. The ROI of AKS is 13.00% while that of PHM is 8.20%. These figures suggest that AKS ventures generate a higher ROI than that of PHM.

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, AKS’s free cash flow per share is a positive 0.47, while that of PHM is positive 1.47.

Valuation

AKS currently trades at a forward P/E of 5.38, and a P/S of 0.22 while PHM trades at a forward P/E of 8.29, a P/B of 2.06, and a P/S of 0.97. This means that looking at the earnings, book values and sales basis, AKS 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 AKS is currently at a -24.35% to its one-year price target of 5.79. Looking at its rival pricing, PHM is at a -14.13% relative to its price target of 35.82.




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), AKS is given a 2.80 while 2.50 placed for PHM. This means that analysts are more bullish on the outlook for AKS 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 AKS is 4.75 while that of PHM is just 3.67. This means that analysts are more bullish on the forecast for PHM stock.

Conclusion

The stock of AK Steel Holding Corporation defeats that of PulteGroup, Inc. when the two are compared, with AKS taking 7 out of the total factors that were been considered. AKS 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, AKS is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for AKS is better on when it is viewed on short interest.

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