Finance

Dissecting the Numbers for Discovery, Inc. (DISCK) and BRF S.A. (BRFS)

Discovery, Inc. (NASDAQ:DISCK) shares are up more than 2.50% this year and recently decreased -3.60% or -$0.81 to settle at $21.70. BRF S.A. (NYSE:BRFS), on the other hand, is down -41.47% year to date as of 05/15/2018. It currently trades at $6.59 and has returned -2.08% during the past week.

Discovery, Inc. (NASDAQ:DISCK) and BRF S.A. (NYSE:BRFS) are the two most active stocks in the CATV Systems industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect DISCK to grow earnings at a 16.00% annual rate over the next 5 years.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. DISCK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.18. Comparatively, BRFS’s free cash flow per share was +0.76. On a percent-of-sales basis, DISCK’s free cash flow was 1% while BRFS converted 5.79% of its revenues into cash flow. This means that, for a given level of sales, BRFS is able to generate more free cash flow for investors.

Valuation

DISCK trades at a forward P/E of 6.76, a P/B of 2.33, compared to a forward P/E of 18.15, a P/B of 1.71, and a P/S of 0.57 for BRFS. 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. DISCK is currently priced at a -14.33% to its one-year price target of 25.33. Comparatively, BRFS is -38.81% relative to its price target of 10.77. This suggests that BRFS is the better investment over the next year.

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. DISCK has a short ratio of 1.27 compared to a short interest of 5.21 for BRFS. This implies that the market is currently less bearish on the outlook for DISCK.

Summary

BRF S.A. (NYSE:BRFS) beats Discovery, Inc. (NASDAQ:DISCK) on a total of 7 of the 14 factors compared between the two stocks. BRFS is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. BRFS is more undervalued relative to its price target. Finally, PHM has better sentiment signals based on short interest.

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