Pure Storage, Inc. (NYSE:PSTG) shares are up more than 57.76% this year and recently increased 1.38% or $0.34 to settle at $25.02. FedEx Corporation (NYSE:FDX), on the other hand, is up 6.41% year to date as of 06/12/2018. It currently trades at $265.53 and has returned 5.37% during the past week.
Pure Storage, Inc. (NYSE:PSTG) and FedEx Corporation (NYSE:FDX) are the two most active stocks in the Data Storage Devices industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.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 PSTG to grow earnings at a 14.00% annual rate over the next 5 years. Comparatively, FDX is expected to grow at a 15.03% annual rate. All else equal, FDX’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 12.5% for FedEx Corporation (FDX). PSTG’s ROI is -38.00% while FDX has a ROI of 11.10%. The interpretation is that FDX’s business generates a higher return on investment than PSTG’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. PSTG’s free cash flow (“FCF”) per share for the trailing twelve months was -0.02. Comparatively, FDX’s free cash flow per share was -6.75. On a percent-of-sales basis, PSTG’s free cash flow was -0.45% while FDX converted -3% of its revenues into cash flow. This means that, for a given level of sales, PSTG is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. PSTG has a current ratio of 2.50 compared to 1.40 for FDX. This means that PSTG can more easily cover its most immediate liabilities over the next twelve months. PSTG’s debt-to-equity ratio is 0.00 versus a D/E of 0.93 for FDX. FDX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
PSTG trades at a forward P/E of 61.32, a P/B of 10.97, and a P/S of 5.05, compared to a forward P/E of 15.25, a P/B of 3.77, and a P/S of 1.10 for FDX. PSTG 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
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. PSTG is currently priced at a 1.01% to its one-year price target of 24.77. Comparatively, FDX is -7.98% relative to its price target of 288.56. This suggests that FDX is the better investment over the next year.
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. PSTG has a short ratio of 4.48 compared to a short interest of 2.92 for FDX. This implies that the market is currently less bearish on the outlook for FDX.Summary
FedEx Corporation (NYSE:FDX) beats Pure Storage, Inc. (NYSE:PSTG) on a total of 9 of the 14 factors compared between the two stocks. FDX has higher cash flow per share, is more profitable and generates a higher return on investment. In terms of valuation, FDX is the cheaper of the two stocks on an earnings, book value and sales basis, FDX is more undervalued relative to its price target. Finally, FDX has better sentiment signals based on short interest.