Finance

Should You Buy Jabil Inc. (JBL) or Norwegian Cruise Line Holdings Ltd. (NCLH)?

Jabil Inc. (NYSE:JBL) shares are up more than 13.56% this year and recently increased 0.98% or $0.29 to settle at $29.81. Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH), on the other hand, is down -0.98% year to date as of 06/12/2018. It currently trades at $52.73 and has returned 3.80% during the past week.

Jabil Inc. (NYSE:JBL) and Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) are the two most active stocks in the Printed Circuit Boards 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 JBL to grow earnings at a 12.00% annual rate over the next 5 years. Comparatively, NCLH is expected to grow at a 14.25% annual rate. All else equal, NCLH’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 27.89% for Norwegian Cruise Line Holdings Ltd. (NCLH). JBL’s ROI is 6.30% while NCLH has a ROI of 8.50%. The interpretation is that NCLH’s business generates a higher return on investment than JBL’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. JBL’s free cash flow (“FCF”) per share for the trailing twelve months was +0.07. Comparatively, NCLH’s free cash flow per share was +2.04. On a percent-of-sales basis, JBL’s free cash flow was 0.06% while NCLH converted 8.49% of its revenues into cash flow. This means that, for a given level of sales, NCLH is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. JBL has a current ratio of 1.00 compared to 0.20 for NCLH. This means that JBL can more easily cover its most immediate liabilities over the next twelve months. JBL’s debt-to-equity ratio is 0.97 versus a D/E of 1.13 for NCLH. NCLH is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

JBL trades at a forward P/E of 10.20, a P/B of 2.28, and a P/S of 0.25, compared to a forward P/E of 10.31, a P/B of 2.13, and a P/S of 2.13 for NCLH. 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. JBL is currently priced at a -8.28% to its one-year price target of 32.50. Comparatively, NCLH is -18.68% relative to its price target of 64.84. This suggests that NCLH is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. JBL has a beta of 0.41 and NCLH’s beta is 1.25. JBL’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. JBL has a short ratio of 2.27 compared to a short interest of 1.92 for NCLH. This implies that the market is currently less bearish on the outlook for NCLH.

Summary

Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) beats Jabil Inc. (NYSE:JBL) on a total of 9 of the 14 factors compared between the two stocks. NCLH higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. NCLH is more undervalued relative to its price target. Finally, NCLH has better sentiment signals based on short interest.

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