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Dissecting the Numbers for Nucor Corporation (NUE) and Thor Industries, Inc. (THO)

Nucor Corporation (NYSE:NUE) shares are up more than 2.20% this year and recently increased 3.14% or $1.98 to settle at $64.98. Thor Industries, Inc. (NYSE:THO), on the other hand, is down -32.80% year to date as of 05/16/2018. It currently trades at $101.28 and has returned 2.69% during the past week.

Nucor Corporation (NYSE:NUE) and Thor Industries, Inc. (NYSE:THO) are the two most active stocks in the Steel & Iron industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect NUE to grow earnings at a 12.99% annual rate over the next 5 years. Comparatively, THO is expected to grow at a 17.00% annual rate. All else equal, THO’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. , compared to an EBITDA margin of 9.48% for Thor Industries, Inc. (THO). NUE’s ROI is 10.80% while THO has a ROI of 21.70%. The interpretation is that THO’s business generates a higher return on investment than NUE’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. NUE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.52. Comparatively, THO’s free cash flow per share was +0.28. On a percent-of-sales basis, NUE’s free cash flow was -0.82% while THO converted 0.2% of its revenues into cash flow. This means that, for a given level of sales, THO is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. NUE has a current ratio of 2.50 compared to 1.60 for THO. This means that NUE can more easily cover its most immediate liabilities over the next twelve months. NUE’s debt-to-equity ratio is 0.43 versus a D/E of 0.05 for THO. NUE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NUE trades at a forward P/E of 11.44, a P/B of 2.31, and a P/S of 0.99, compared to a forward P/E of 9.27, a P/B of 3.05, and a P/S of 0.67 for THO. NUE is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. NUE is currently priced at a -13.67% to its one-year price target of 75.27. Comparatively, THO is -34.89% relative to its price target of 155.56. This suggests that THO is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. NUE has a beta of 1.57 and THO’s beta is 1.29. THO’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. NUE has a short ratio of 2.19 compared to a short interest of 3.89 for THO. This implies that the market is currently less bearish on the outlook for NUE.

Summary

Thor Industries, Inc. (NYSE:THO) beats Nucor Corporation (NYSE:NUE) on a total of 10 of the 14 factors compared between the two stocks. THO is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, THO is the cheaper of the two stocks on an earnings and sales basis, THO is more undervalued relative to its price target. Finally, DISCA has better sentiment signals based on short interest.

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