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Critical Comparison: Mattel, Inc. (MAT) vs. LyondellBasell Industries N.V. (LYB)

Mattel, Inc. (NASDAQ:MAT) shares are up more than 0.65% this year and recently increased 2.79% or $0.42 to settle at $15.48. LyondellBasell Industries N.V. (NYSE:LYB), on the other hand, is up 4.52% year to date as of 05/16/2018. It currently trades at $115.31 and has returned 4.92% during the past week.

Mattel, Inc. (NASDAQ:MAT) and LyondellBasell Industries N.V. (NYSE:LYB) are the two most active stocks in the Toys & Games industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

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 MAT to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, LYB is expected to grow at a 7.11% annual rate. All else equal, MAT’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 20.97% for LyondellBasell Industries N.V. (LYB). MAT’s ROI is -22.80% while LYB has a ROI of 23.00%. The interpretation is that LYB’s business generates a higher return on investment than MAT’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. MAT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.93. Comparatively, LYB’s free cash flow per share was +0.46. On a percent-of-sales basis, MAT’s free cash flow was -6.55% while LYB converted 0.52% of its revenues into cash flow. This means that, for a given level of sales, LYB is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. MAT has a current ratio of 2.30 compared to 2.60 for LYB. This means that LYB can more easily cover its most immediate liabilities over the next twelve months. MAT’s debt-to-equity ratio is 2.92 versus a D/E of 0.89 for LYB. MAT is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

MAT trades at a forward P/E of 35.26, a P/B of 5.43, and a P/S of 1.10, compared to a forward P/E of 10.65, a P/B of 4.67, and a P/S of 1.23 for LYB. MAT is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. MAT is currently priced at a -0.64% to its one-year price target of 15.58. Comparatively, LYB is -0.44% relative to its price target of 115.82. This suggests that MAT is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. MAT has a beta of 0.94 and LYB’s beta is 1.09. MAT’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. MAT has a short ratio of 10.61 compared to a short interest of 3.82 for LYB. This implies that the market is currently less bearish on the outlook for LYB.

Summary

LyondellBasell Industries N.V. (NYSE:LYB) beats Mattel, Inc. (NASDAQ:MAT) on a total of 9 of the 14 factors compared between the two stocks. LYB is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, LYB is the cheaper of the two stocks on an earnings and book value, Finally, LYB has better sentiment signals based on short interest.

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