Western Digital Corporation (NASDAQ:WDC) shares are up more than 9.42% this year and recently increased 4.87% or $4.04 to settle at $87.02. ArQule, Inc. (NASDAQ:ARQL), on the other hand, is up 106.67% year to date as of 05/16/2018. It currently trades at $3.41 and has returned 33.20% during the past week.
Western Digital Corporation (NASDAQ:WDC) and ArQule, Inc. (NASDAQ:ARQL) are the two most active stocks in the Data Storage Devices industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.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 WDC to grow earnings at a 21.67% annual rate over the next 5 years. Comparatively, ARQL is expected to grow at a 5.00% annual rate. All else equal, WDC’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Western Digital Corporation (WDC) has an EBITDA margin of 23.88%. This suggests that WDC underlying business is more profitableCash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. WDC’s free cash flow (“FCF”) per share for the trailing twelve months was +2.12. Comparatively, ARQL’s free cash flow per share was -0.06.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. WDC has a current ratio of 2.40 compared to 5.40 for ARQL. This means that ARQL can more easily cover its most immediate liabilities over the next twelve months. WDC’s debt-to-equity ratio is 0.99 versus a D/E of 0.00 for ARQL. WDC is therefore the more solvent of the two companies, and has lower financial risk.Valuation
WDC trades at a forward P/E of 6.46, a P/B of 2.29, and a P/S of 1.27, compared to a P/B of 31.00, and a P/S of 72.45 for ARQL. 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. WDC is currently priced at a -25.03% to its one-year price target of 116.08. Comparatively, ARQL is -33.14% relative to its price target of 5.10. This suggests that ARQL is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. WDC has a beta of 1.00 and ARQL’s beta is 0.84. ARQL’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. WDC has a short ratio of 1.51 compared to a short interest of 1.57 for ARQL. This implies that the market is currently less bearish on the outlook for WDC.Summary
Western Digital Corporation (NASDAQ:WDC) beats ArQule, Inc. (NASDAQ:ARQL) on a total of 7 of the 13 factors compared between the two stocks. WDC is growing fastly, is more profitable, generates a higher return on investment and has higher cash flow per share. In terms of valuation, WDC is the cheaper of the two stocks on book value and sales basis, Finally, WDC has better sentiment signals based on short interest.