Earnings

Are These Stocks A Sure Bet? – Activision Blizzard, Inc. (ATVI), Berkshire Hathaway Inc. (BRK-B)

The shares of Activision Blizzard, Inc. have increased by more than 11.07% this year alone. The shares recently went up by 0.23% or $0.16 and now trades at $70.33. The shares of Berkshire Hathaway Inc. (NYSE:BRK-B), has slumped by -0.20% year to date as of 05/16/2018. The shares currently trade at $197.83 and have been able to report a change of -1.02% over the past one week.

The stock of Activision Blizzard, Inc. and Berkshire Hathaway Inc. were two of the most active stocks on Wednesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 16.32% versus 8.80%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that ATVI will grow it’s earning at a 16.32% annual rate in the next 5 years. This is in contrast to BRK-B which will have a positive growth at a 8.80% annual rate. This means that the higher growth rate of ATVI implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. ATVI has an EBITDA margin of 28.72%, this implies that the underlying business of ATVI is more profitable. These figures suggest that ATVI ventures generate a higher ROI than that of BRK-B.

Valuation



ATVI currently trades at a forward P/E of 23.60, a P/B of 5.44, and a P/S of 7.34 while BRK-B trades at a forward P/E of 20.10, a P/B of 0.00, and a P/S of 2.04. This means that looking at the earnings, book values and sales basis, BRK-B is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of ATVI is currently at a -7.64% to its one-year price target of 76.15. Looking at its rival pricing, BRK-B is at a -15.28% relative to its price target of 233.50.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), ATVI is given a 2.00 while 2.20 placed for BRK-B. This means that analysts are more bullish on the outlook for BRK-B stocks.

Insider Activity and Investor Sentiment




Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for ATVI is 1.37 while that of BRK-B is just 2.66. This means that analysts are more bullish on the forecast for ATVI stock.

Conclusion

The stock of Berkshire Hathaway Inc. defeats that of Activision Blizzard, Inc. when the two are compared, with BRK-B taking 6 out of the total factors that were been considered. BRK-B happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, BRK-B is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for BRK-B is better on when it is viewed on short interest.

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