The Williams Companies, Inc. (NYSE:WMB) shares are down more than -8.13% this year and recently increased 2.34% or $0.64 to settle at $28.01. AK Steel Holding Corporation (NYSE:AKS), on the other hand, is down -14.84% year to date as of 05/17/2018. It currently trades at $4.82 and has returned 8.31% during the past week.
The Williams Companies, Inc. (NYSE:WMB) and AK Steel Holding Corporation (NYSE:AKS) are the two most active stocks in the Oil & Gas Pipelines 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect WMB to grow earnings at a 45.22% annual rate over the next 5 years. Comparatively, AKS is expected to grow at a 22.14% annual rate. All else equal, WMB’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 9.44% for AK Steel Holding Corporation (AKS). WMB’s ROI is 3.10% while AKS has a ROI of 13.00%. The interpretation is that AKS’s business generates a higher return on investment than WMB’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. WMB’s free cash flow (“FCF”) per share for the trailing twelve months was -0.66. Comparatively, AKS’s free cash flow per share was +0.09. On a percent-of-sales basis, WMB’s free cash flow was -6.8% while AKS converted 0.47% of its revenues into cash flow. This means that, for a given level of sales, AKS 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. WMB has a current ratio of 1.10 compared to 2.10 for AKS. This means that AKS can more easily cover its most immediate liabilities over the next twelve months.Valuation
WMB trades at a forward P/E of 27.04, a P/B of 2.45, and a P/S of 2.85, compared to a forward P/E of 5.80, and a P/S of 0.24 for AKS. WMB 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. WMB is currently priced at a -17.28% to its one-year price target of 33.86. Comparatively, AKS is -16.75% relative to its price target of 5.79. This suggests that WMB 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. WMB has a beta of 1.42 and AKS’s beta is 2.84. WMB’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. WMB has a short ratio of 2.23 compared to a short interest of 4.51 for AKS. This implies that the market is currently less bearish on the outlook for WMB.Summary
AK Steel Holding Corporation (NYSE:AKS) beats The Williams Companies, Inc. (NYSE:WMB) on a total of 8 of the 14 factors compared between the two stocks. AKS is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, AKS is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, LPI has better sentiment signals based on short interest.