Finance

Comparing NRG Energy, Inc. (NRG) and Weibo Corporation (WB)

NRG Energy, Inc. (NYSE:NRG) shares are up more than 18.50% this year and recently decreased -2.96% or -$1.03 to settle at $33.75. Weibo Corporation (NASDAQ:WB), on the other hand, is up 1.05% year to date as of 05/15/2018. It currently trades at $104.55 and has returned -18.31% during the past week.

NRG Energy, Inc. (NYSE:NRG) and Weibo Corporation (NASDAQ:WB) are the two most active stocks in the Diversified Utilities 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

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect NRG to grow earnings at a 77.47% annual rate over the next 5 years. Comparatively, WB is expected to grow at a 47.88% annual rate. All else equal, NRG’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 9.63% for Weibo Corporation (WB). NRG’s ROI is 7.30% while WB has a ROI of 16.40%. The interpretation is that WB’s business generates a higher return on investment than NRG’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. NRG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.03. Comparatively, WB’s free cash flow per share was +0.82. On a percent-of-sales basis, NRG’s free cash flow was -0.09% while WB converted 15.77% of its revenues into cash flow. This means that, for a given level of sales, WB is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. NRG has a current ratio of 1.20 compared to 4.00 for WB. This means that WB can more easily cover its most immediate liabilities over the next twelve months.

Valuation

NRG trades at a forward P/E of 11.24, and a P/S of 1.01, compared to a forward P/E of 25.81, a P/B of 17.48, and a P/S of 20.58 for WB. NRG is the cheaper of the two stocks on an earnings, book value and sales basis. 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”. NRG is currently priced at a -7.53% to its one-year price target of 36.50. Comparatively, WB is -27.82% relative to its price target of 144.85. This suggests that WB is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. NRG has a beta of 0.97 and WB’s beta is 2.52. NRG’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. NRG has a short ratio of 2.42 compared to a short interest of 2.15 for WB. This implies that the market is currently less bearish on the outlook for WB.

Summary

Weibo Corporation (NASDAQ:WB) beats NRG Energy, Inc. (NYSE:NRG) on a total of 7 of the 14 factors compared between the two stocks. WB is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, NRG is the cheaper of the two stocks on an earnings, book value and sales basis, WB is more undervalued relative to its price target. Finally, WB has better sentiment signals based on short interest.

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