Earnings

Which is more compelling pick right now? – Palo Alto Networks, Inc. (PANW), Edgewell Personal Care Company (EPC)

The shares of Palo Alto Networks, Inc. have increased by more than 43.11% this year alone. The shares recently went up by 4.38% or $8.71 and now trades at $207.42. The shares of Edgewell Personal Care Company (NYSE:EPC), has slumped by -15.93% year to date as of 06/12/2018. The shares currently trade at $49.93 and have been able to report a change of 12.33% over the past one week.

The stock of Palo Alto Networks, Inc. and Edgewell Personal Care Company were two of the most active stocks on Tuesday. 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: 29.28% versus 1.76%

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 PANW will grow it’s earning at a 29.28% annual rate in the next 5 years. This is in contrast to EPC which will have a positive growth at a 1.76% annual rate. This means that the higher growth rate of PANW 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. The ROI of PANW is -15.80% while that of EPC is 0.20%. These figures suggest that EPC ventures generate a higher ROI than that of PANW.

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, PANW’s free cash flow per share is a positive 12.18, while that of EPC is positive 3.41.

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 PANW is 1.10 and that of EPC is 1.80. This implies that it is easier for PANW to cover its immediate obligations over the next 12 months than EPC. The debt ratio of PANW is 0.75 compared to 0.82 for EPC. EPC can be able to settle its long-term debts and thus is a lower financial risk than PANW.

Valuation

PANW currently trades at a forward P/E of 42.88, a P/B of 26.39, and a P/S of 9.13 while EPC trades at a forward P/E of 13.41, a P/B of 1.56, and a P/S of 1.18. This means that looking at the earnings, book values and sales basis, EPC 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 PANW is currently at a -8.53% to its one-year price target of 226.76. Looking at its rival pricing, EPC is at a -8.32% relative to its price target of 54.46.

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), PANW is given a 1.90 while 2.80 placed for EPC. This means that analysts are more bullish on the outlook for EPC 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 PANW is 3.23 while that of EPC is just 10.36. This means that analysts are more bullish on the forecast for PANW stock.

Conclusion

The stock of Palo Alto Networks, Inc. defeats that of Edgewell Personal Care Company when the two are compared, with PANW taking 7 out of the total factors that were been considered. PANW 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, PANW is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for PANW is better on when it is viewed on short interest.

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