Earnings

Reliable Long-term Trend to Profit From: Avon Products, Inc. (AVP), PACCAR Inc (PCAR)

The shares of Avon Products, Inc. have decreased by more than -9.77% this year alone. The shares recently went down by -1.02% or -$0.02 and now trades at $1.94. The shares of PACCAR Inc (NASDAQ:PCAR), has slumped by -11.10% year to date as of 05/14/2018. The shares currently trade at $63.19 and have been able to report a change of -2.03% over the past one week.

The stock of Avon Products, Inc. and PACCAR Inc 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: 54.20% versus 5.04%

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 AVP will grow it’s earning at a 54.20% annual rate in the next 5 years. This is in contrast to PCAR which will have a positive growth at a 5.04% annual rate. This means that the higher growth rate of AVP 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. AVP has an EBITDA margin of 6.82%, this implies that the underlying business of PCAR is more profitable. The ROI of AVP is 12.60% while that of PCAR is 9.00%. These figures suggest that AVP ventures generate a higher ROI than that of PCAR.

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, AVP’s free cash flow per share is a negative -2.16, while that of PCAR is also a negative -1.84.

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 AVP is 1.20 and that of PCAR is 4.70. This implies that it is easier for AVP to cover its immediate obligations over the next 12 months than PCAR.

Valuation

AVP currently trades at a forward P/E of 8.08, and a P/S of 0.15 while PCAR trades at a forward P/E of 11.04, a P/B of 2.60, and a P/S of 1.07. This means that looking at the earnings, book values and sales basis, AVP 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 AVP is currently at a -29.96% to its one-year price target of 2.77. Looking at its rival pricing, PCAR is at a -13.14% relative to its price target of 72.75.

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), AVP is given a 3.00 while 2.80 placed for PCAR. This means that analysts are more bullish on the outlook for AVP 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 AVP is 4.13 while that of PCAR is just 3.17. This means that analysts are more bullish on the forecast for PCAR stock.

Conclusion

The stock of PACCAR Inc defeats that of Avon Products, Inc. when the two are compared, with PCAR taking 6 out of the total factors that were been considered. PCAR 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, PCAR is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for PCAR is better on when it is viewed on short interest.

Previous ArticleNext Article

Related Post

Should You Buy Infinera Corporation (INFN) or ADTR... Infinera Corporation (NASDAQ:INFN) shares are up more than 9.79% this year and recently increased 0.29% or $0.02 to settle at $6.95. ADTRAN, Inc. (NAS...
Choosing Between Brinker International, Inc. (EAT)... Brinker International, Inc. (NYSE:EAT) shares are down more than -31.88% this year and recently increased 1.17% or $0.39 to settle at $33.74. Bloomin'...
Are These Stocks A Sure Bet? – Bank of Ameri... The shares of Bank of America Corporation have increased by more than 2.51% this year alone. The shares recently went down by -1.79% or -$0.55 and now...
Comparing Oracle Corporation (ORCL) and Workday, I... Oracle Corporation (NYSE:ORCL) shares are up more than 27.59% this year and recently increased 1.11% or $0.54 to settle at $49.06. Workday, Inc. (NASD...
Fairmount Santrol Holdings Inc. (FMSA) vs. Tahoe R... Fairmount Santrol Holdings Inc. (NYSE:FMSA) shares are down more than -59.03% this year and recently decreased -0.82% or -$0.04 to settle at $4.83. Ta...