Peabody Energy Corporation (NYSE:BTU) shares are up more than 4.93% this year and recently increased 3.07% or $1.23 to settle at $41.31. Beazer Homes USA, Inc. (NYSE:BZH), on the other hand, is down -22.85% year to date as of 05/16/2018. It currently trades at $14.82 and has returned -4.20% during the past week.
Peabody Energy Corporation (NYSE:BTU) and Beazer Homes USA, Inc. (NYSE:BZH) are the two most active stocks in the Industrial Metals & Minerals industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.Growth
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, BZH is expected to grow at a 4.00% annual rate. All else equal, BZH’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 2.75% for Beazer Homes USA, Inc. (BZH). BTU’s ROI is 25.30% while BZH has a ROI of 2.30%. The interpretation is that BTU’s business generates a higher return on investment than BZH’s.Cash Flow
Cash is king when it comes to investing. BTU’s free cash flow (“FCF”) per share for the trailing twelve months was +3.48. Comparatively, BZH’s free cash flow per share was -0.56. On a percent-of-sales basis, BTU’s free cash flow was 7.83% while BZH converted -0.98% of its revenues into cash flow. This means that, for a given level of sales, BTU is able to generate more free cash flow for investors.Liquidity and Financial Risk
BTU’s debt-to-equity ratio is 0.40 versus a D/E of 2.34 for BZH. BZH is therefore the more solvent of the two companies, and has lower financial risk.
BTU trades at a forward P/E of 23.99, a P/B of 1.38, and a P/S of 0.89, compared to a forward P/E of 7.16, a P/B of 0.84, and a P/S of 0.25 for BZH. BTU is the expensive 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
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. BTU is currently priced at a -15.49% to its one-year price target of 48.88. Comparatively, BZH is -26.52% relative to its price target of 20.17. This suggests that BZH is the better investment over the next year.
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. BTU has a short ratio of 2.30 compared to a short interest of 2.87 for BZH. This implies that the market is currently less bearish on the outlook for BTU.Summary
Peabody Energy Corporation (NYSE:BTU) beats Beazer Homes USA, Inc. (NYSE:BZH) on a total of 8 of the 14 factors compared between the two stocks. BTU 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. Finally, BTU has better sentiment signals based on short interest.