Global

Choosing Between Micron Technology, Inc. (MU) and Rite Aid Corporation (RAD)

Micron Technology, Inc. (NASDAQ:MU) shares are up more than 31.35% this year and recently increased 1.91% or $1.01 to settle at $54.01. Rite Aid Corporation (NYSE:RAD), on the other hand, is down -15.23% year to date as of 05/15/2018. It currently trades at $1.67 and has returned 2.45% during the past week.

Micron Technology, Inc. (NASDAQ:MU) and Rite Aid Corporation (NYSE:RAD) are the two most active stocks in the Semiconductor- Memory Chips industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect MU to grow earnings at a 30.33% annual rate over the next 5 years. Comparatively, RAD is expected to grow at a -3.69% annual rate. All else equal, MU’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 3.17% for Rite Aid Corporation (RAD). MU’s ROI is 19.20% while RAD has a ROI of 3.00%. The interpretation is that MU’s business generates a higher return on investment than RAD’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. MU’s free cash flow (“FCF”) per share for the trailing twelve months was +1.69. Comparatively, RAD’s free cash flow per share was +0.04. On a percent-of-sales basis, MU’s free cash flow was 9.65% while RAD converted 0.2% of its revenues into cash flow. This means that, for a given level of sales, MU is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. MU has a current ratio of 2.60 compared to 1.40 for RAD. This means that MU can more easily cover its most immediate liabilities over the next twelve months. MU’s debt-to-equity ratio is 0.36 versus a D/E of 2.12 for RAD. RAD is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

MU trades at a forward P/E of 5.46, a P/B of 2.43, and a P/S of 2.38, compared to a forward P/E of 15.46, a P/B of 1.10, and a P/S of 0.08 for RAD. MU 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. MU is currently priced at a -25.73% to its one-year price target of 72.72. Comparatively, RAD is -16.5% relative to its price target of 2.00. This suggests that MU 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. MU has a beta of 1.34 and RAD’s beta is 1.66. MU’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. MU has a short ratio of 1.07 compared to a short interest of 6.98 for RAD. This implies that the market is currently less bearish on the outlook for MU.

Summary

Micron Technology, Inc. (NASDAQ:MU) beats Rite Aid Corporation (NYSE:RAD) on a total of 12 of the 14 factors compared between the two stocks. MU is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. MU is more undervalued relative to its price target. Finally, MU has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

A Side-by-side Analysis of DISH Network Corporatio... DISH Network Corporation (NASDAQ:DISH) shares are down more than -34.83% this year and recently increased 4.39% or $1.31 to settle at $31.12. Sangamo ...
Which is more compelling pick right now? – T... The shares of Trilogy Metals Inc. have increased by more than 134.67% this year alone. The shares recently went up by 35.23% or $0.31 and now trades a...
How Does the Fundamental Picture Look for Vista Ou... It's worth it to have a look at Vista Outdoor Inc. (NYSE:VSTO) as there may be a chasm between the bulls and the bears as far as recent trading activi...
Choosing Between Hot Stocks: XOMA Corporation (XOM... The shares of XOMA Corporation have decreased by more than -38.19% this year alone. The shares recently went down by -22.92% or -$6.55 and now trades ...
Critical Comparison: 3M Company (MMM) vs. Norfolk ... 3M Company (NYSE:MMM) shares are down more than -8.05% this year and recently increased 0.98% or $2.09 to settle at $216.42. Norfolk Southern Corporat...