Finance

A Side-by-side Analysis of Coty Inc. (COTY) and Under Armour, Inc. (UA)

Coty Inc. (NYSE:COTY) shares are down more than -29.61% this year and recently decreased -1.62% or -$0.23 to settle at $14.00. Under Armour, Inc. (NYSE:UA), on the other hand, is up 63.44% year to date as of 06/13/2018. It currently trades at $21.77 and has returned -1.49% during the past week.

Coty Inc. (NYSE:COTY) and Under Armour, Inc. (NYSE:UA) are the two most active stocks in the Personal Products 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

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect COTY to grow earnings at a 16.40% annual rate over the next 5 years. Comparatively, UA is expected to grow at a 5.00% annual rate. All else equal, COTY’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 3.32% for Under Armour, Inc. (UA).

Cash Flow



The value of a stock is simply the present value of its future free cash flows. COTY’s free cash flow (“FCF”) per share for the trailing twelve months was -0.40. Comparatively, UA’s free cash flow per share was -0.08. On a percent-of-sales basis, COTY’s free cash flow was -3.92% while UA converted -0.71% of its revenues into cash flow. This means that, for a given level of sales, UA is able to generate more free cash flow for investors.

Valuation

COTY trades at a forward P/E of 16.67, a P/B of 1.11, and a P/S of 1.07, compared to a forward P/E of 60.47, a P/B of 4.77, for UA. 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. COTY is currently priced at a -18.93% to its one-year price target of 17.27. Comparatively, UA is 67.46% relative to its price target of 13.00. This suggests that COTY is the better investment over the next year.

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. COTY has a short ratio of 11.60 compared to a short interest of 10.48 for UA. This implies that the market is currently less bearish on the outlook for UA.

Summary

Under Armour, Inc. (NYSE:UA) beats Coty Inc. (NYSE:COTY) on a total of 7 of the 14 factors compared between the two stocks. UA is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, UA has better sentiment signals based on short interest.

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