Global

Should You Buy Harley-Davidson, Inc. (HOG) or SunOpta Inc. (STKL)?

Harley-Davidson, Inc. (NYSE:HOG) shares are down more than -16.82% this year and recently increased 2.89% or $1.19 to settle at $42.32. SunOpta Inc. (NASDAQ:STKL), on the other hand, is down -8.39% year to date as of 05/16/2018. It currently trades at $7.10 and has returned 1.43% during the past week.

Harley-Davidson, Inc. (NYSE:HOG) and SunOpta Inc. (NASDAQ:STKL) are the two most active stocks in the Recreational Vehicles 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 grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect HOG to grow earnings at a 8.50% annual rate over the next 5 years. Comparatively, STKL is expected to grow at a 3.80% annual rate. All else equal, HOG’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Harley-Davidson, Inc. (HOG) has an EBITDA margin of 14.78%. This suggests that HOG underlying business is more profitable HOG’s ROI is 6.80% while STKL has a ROI of -15.70%. The interpretation is that HOG’s business generates a higher return on investment than STKL’s.

Cash Flow



Cash is king when it comes to investing. HOG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.59. Comparatively, STKL’s free cash flow per share was -0.01. On a percent-of-sales basis, HOG’s free cash flow was 1.74% while STKL converted -0.07% of its revenues into cash flow. This means that, for a given level of sales, HOG 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. HOG has a current ratio of 1.10 compared to 1.30 for STKL. This means that STKL can more easily cover its most immediate liabilities over the next twelve months. HOG’s debt-to-equity ratio is 3.52 versus a D/E of 1.92 for STKL. HOG is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

HOG trades at a forward P/E of 10.72, a P/B of 3.57, and a P/S of 1.25, compared to a forward P/E of 41.76, a P/B of 2.56, and a P/S of 0.48 for STKL. HOG is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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

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. HOG is currently priced at a -13.37% to its one-year price target of 48.85. Comparatively, STKL is -31.27% relative to its price target of 10.33. This suggests that STKL is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. HOG has a beta of 0.87 and STKL’s beta is 1.32. HOG’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. HOG has a short ratio of 8.05 compared to a short interest of 6.57 for STKL. This implies that the market is currently less bearish on the outlook for STKL.

Summary

SunOpta Inc. (NASDAQ:STKL) beats Harley-Davidson, Inc. (NYSE:HOG) on a total of 7 of the 14 factors compared between the two stocks. STKL is growing fastly and has lower financial risk. In terms of valuation, STKL is the cheaper of the two stocks on book value and sales basis, STKL is more undervalued relative to its price target. Finally, STKL has better sentiment signals based on short interest.

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