PulteGroup, Inc. (NYSE:PHM) shares are down more than -11.88% this year and recently decreased -5.36% or -$1.66 to settle at $29.30. Dynavax Technologies Corporation (NASDAQ:DVAX), on the other hand, is up 1.07% year to date as of 05/15/2018. It currently trades at $18.90 and has returned 13.86% during the past week.
PulteGroup, Inc. (NYSE:PHM) and Dynavax Technologies Corporation (NASDAQ:DVAX) are the two most active stocks in the Residential Construction 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect PHM to grow earnings at a 43.26% annual rate over the next 5 years.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. PulteGroup, Inc. (PHM) has an EBITDA margin of 12.04%. This suggests that PHM underlying business is more profitable PHM’s ROI is 8.20% while DVAX has a ROI of -48.10%. The interpretation is that PHM’s business generates a higher return on investment than DVAX’s.Cash Flow
Cash is king when it comes to investing. PHM’s free cash flow (“FCF”) per share for the trailing twelve months was +0.44. Comparatively, DVAX’s free cash flow per share was -0.50. On a percent-of-sales basis, PHM’s free cash flow was 1.47% while DVAX converted -9.43% of its revenues into cash flow. This means that, for a given level of sales, PHM is able to generate more free cash flow for investors.Liquidity and Financial Risk
PHM’s debt-to-equity ratio is 0.78 versus a D/E of 0.60 for DVAX. PHM is therefore the more solvent of the two companies, and has lower financial risk.
PHM trades at a forward P/E of 7.90, a P/B of 1.97, and a P/S of 0.92, compared to a P/B of 7.03, and a P/S of 3224.34 for DVAX. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. PHM is currently priced at a -18.2% to its one-year price target of 35.82. Comparatively, DVAX is -34.44% relative to its price target of 28.83. This suggests that DVAX is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. PHM has a beta of 1.03 and DVAX’s beta is 0.88. DVAX’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. PHM has a short ratio of 4.20 compared to a short interest of 4.38 for DVAX. This implies that the market is currently less bearish on the outlook for PHM.Summary
PulteGroup, Inc. (NYSE:PHM) beats Dynavax Technologies Corporation (NASDAQ:DVAX) on a total of 8 of the 14 factors compared between the two stocks. PHM is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, PHM is the cheaper of the two stocks on book value and sales basis, Finally, PHM has better sentiment signals based on short interest.