Earnings

Which Market Offer More Value? – ON Semiconductor Corporation (ON), Hi-Crush Partners LP (HCLP)

The shares of ON Semiconductor Corporation have increased by more than 20.34% this year alone. The shares recently went down by -2.02% or -$0.52 and now trades at $25.20. The shares of Hi-Crush Partners LP (NYSE:HCLP), has jumped by 16.82% year to date as of 06/08/2018. The shares currently trade at $12.50 and have been able to report a change of -3.85% over the past one week.

The stock of ON Semiconductor Corporation and Hi-Crush Partners LP were two of the most active stocks on Friday. 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: 14.93% versus -1.42%

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 ON will grow it’s earning at a 14.93% annual rate in the next 5 years. This is in contrast to HCLP which will have a positive growth at a -1.42% annual rate. This means that the higher growth rate of ON 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. ON has an EBITDA margin of 22.36%, this implies that the underlying business of ON is more profitable. The ROI of ON is 8.10% while that of HCLP is 9.40%. These figures suggest that HCLP ventures generate a higher ROI than that of ON.

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, ON’s free cash flow per share is a positive 2.01.

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 ON is 1.50 and that of HCLP is 1.90. This implies that it is easier for ON to cover its immediate obligations over the next 12 months than HCLP. The debt ratio of ON is 0.97 compared to 0.24 for HCLP. ON can be able to settle its long-term debts and thus is a lower financial risk than HCLP.

Valuation

ON currently trades at a forward P/E of 12.83, a P/B of 3.66, and a P/S of 2.04 while HCLP trades at a forward P/E of 4.82, a P/B of 1.37, and a P/S of 1.55. This means that looking at the earnings, book values and sales basis, HCLP 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 ON is currently at a -5.55% to its one-year price target of 26.68. Looking at its rival pricing, HCLP is at a -26.51% relative to its price target of 17.01.

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), ON is given a 2.20 while 1.90 placed for HCLP. This means that analysts are more bullish on the outlook for ON 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 ON is 3.86 while that of HCLP is just 3.93. This means that analysts are more bullish on the forecast for ON stock.

Conclusion

The stock of ON Semiconductor Corporation defeats that of Hi-Crush Partners LP when the two are compared, with ON taking 5 out of the total factors that were been considered. ON 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, ON is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ON is better on when it is viewed on short interest.

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