Earnings

Uncovering the next great stocks: United Continental Holdings, Inc. (UAL), Pure Storage, Inc. (PSTG)

The shares of United Continental Holdings, Inc. have increased by more than 3.47% this year alone. The shares recently went up by 2.51% or $1.71 and now trades at $69.74. The shares of Pure Storage, Inc. (NYSE:PSTG), has jumped by 48.74% year to date as of 05/16/2018. The shares currently trade at $23.59 and have been able to report a change of 1.99% over the past one week.

The stock of United Continental Holdings, Inc. and Pure Storage, 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: 18.44% versus 40.00%

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 UAL will grow it’s earning at a 18.44% annual rate in the next 5 years. This is in contrast to PSTG which will have a positive growth at a 40.00% annual rate. This means that the higher growth rate of PSTG 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. UAL has an EBITDA margin of 13.73%, this implies that the underlying business of UAL is more profitable. The ROI of UAL is 10.50% while that of PSTG is -38.00%. These figures suggest that UAL ventures generate a higher ROI than that of PSTG.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, UAL’s free cash flow per share is a positive 1.95, while that of PSTG is positive 3.81.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for UAL is 0.60 and that of PSTG is 2.50. This implies that it is easier for UAL to cover its immediate obligations over the next 12 months than PSTG. The debt ratio of UAL is 1.80 compared to 0.00 for PSTG. UAL can be able to settle its long-term debts and thus is a lower financial risk than PSTG.

Valuation

UAL currently trades at a forward P/E of 7.55, a P/B of 2.38, and a P/S of 0.52 while PSTG trades at a forward P/E of 57.54, a P/B of 10.35, and a P/S of 5.21. This means that looking at the earnings, book values and sales basis, UAL 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 UAL is currently at a -17.1% to its one-year price target of 84.13. Looking at its rival pricing, PSTG is at a 0.47% relative to its price target of 23.48.

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), UAL is given a 2.20 while 2.10 placed for PSTG. This means that analysts are more bullish on the outlook for UAL 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 UAL is 3.83 while that of PSTG is just 4.94. This means that analysts are more bullish on the forecast for UAL stock.

Conclusion

The stock of Pure Storage, Inc. defeats that of United Continental Holdings, Inc. when the two are compared, with PSTG taking 6 out of the total factors that were been considered. PSTG 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, PSTG is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for PSTG is better on when it is viewed on short interest.

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