Finance

Sibanye Gold Limited (SBGL) vs. Baozun Inc. (BZUN): Which is the Better Investment?

Sibanye Gold Limited (NYSE:SBGL) shares are down more than -40.07% this year and recently decreased -7.91% or -$0.25 to settle at $2.91. Baozun Inc. (NASDAQ:BZUN), on the other hand, is up 43.16% year to date as of 05/15/2018. It currently trades at $45.18 and has returned -8.73% during the past week.

Sibanye Gold Limited (NYSE:SBGL) and Baozun Inc. (NASDAQ:BZUN) are the two most active stocks in the Gold industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect SBGL to grow earnings at a 1.30% annual rate over the next 5 years. Comparatively, BZUN is expected to grow at a 8.83% annual rate. All else equal, BZUN’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 Return on Investment (ROI) as measures of profitability and return. SBGL’s ROI is 0.70% while BZUN has a ROI of 9.70%. The interpretation is that BZUN’s business generates a higher return on investment than SBGL’s.

Cash Flow



Cash is king when it comes to investing. On a percent-of-sales basis, SBGL’s free cash flow was 0% while BZUN converted 0% of its revenues into cash flow. This means that, for a given level of sales, SBGL 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. SBGL has a current ratio of 1.40 compared to 2.10 for BZUN. This means that BZUN can more easily cover its most immediate liabilities over the next twelve months. SBGL’s debt-to-equity ratio is 1.07 versus a D/E of 0.12 for BZUN. SBGL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SBGL trades at a forward P/E of 10.39, a P/B of 0.88, and a P/S of 0.45, compared to a forward P/E of 24.36, a P/B of 8.62, and a P/S of 6.04 for BZUN. SBGL 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

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. SBGL is currently priced at a -42.26% to its one-year price target of 5.04. Comparatively, BZUN is 0.29% relative to its price target of 45.05. This suggests that SBGL is the better investment over the next year.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. SBGL has a short ratio of 4.62 compared to a short interest of 1.87 for BZUN. This implies that the market is currently less bearish on the outlook for BZUN.

Summary




Baozun Inc. (NASDAQ:BZUN) beats Sibanye Gold Limited (NYSE:SBGL) on a total of 7 of the 14 factors compared between the two stocks. BZUN , generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, SBGL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, BZUN has better sentiment signals based on short interest.

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