Albemarle Corporation (NYSE:ALB) shares are down more than -26.36% this year and recently decreased -1.63% or -$1.56 to settle at $94.18. CBRE Group, Inc. (NYSE:CBRE), on the other hand, is up 10.69% year to date as of 06/13/2018. It currently trades at $47.94 and has returned -0.25% during the past week.
Albemarle Corporation (NYSE:ALB) and CBRE Group, Inc. (NYSE:CBRE) are the two most active stocks in the Specialty Chemicals 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
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect ALB to grow earnings at a 13.08% annual rate over the next 5 years. Comparatively, CBRE is expected to grow at a 12.75% annual rate. All else equal, ALB’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. Albemarle Corporation (ALB) has an EBITDA margin of 25.05%. This suggests that ALB underlying business is more profitable ALB’s ROI is 10.40% while CBRE has a ROI of 10.70%. The interpretation is that CBRE’s business generates a higher return on investment than ALB’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, ALB’s free cash flow was 0% while CBRE converted -2.08% of its revenues into cash flow. This means that, for a given level of sales, ALB is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. ALB has a current ratio of 2.50 compared to 1.20 for CBRE. This means that ALB can more easily cover its most immediate liabilities over the next twelve months. ALB’s debt-to-equity ratio is 0.39 versus a D/E of 0.77 for CBRE. CBRE is therefore the more solvent of the two companies, and has lower financial risk.Valuation
ALB trades at a forward P/E of 15.93, a P/B of 2.74, and a P/S of 3.30, compared to a forward P/E of 14.33, a P/B of 3.73, and a P/S of 1.02 for CBRE. ALB is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. ALB is currently priced at a -26.54% to its one-year price target of 128.21. Comparatively, CBRE is -7.7% relative to its price target of 51.94. This suggests that ALB is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. ALB has a beta of 1.62 and CBRE’s beta is 1.73. ALB’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. ALB has a short ratio of 7.77 compared to a short interest of 3.06 for CBRE. This implies that the market is currently less bearish on the outlook for CBRE.Summary
Albemarle Corporation (NYSE:ALB) beats CBRE Group, Inc. (NYSE:CBRE) on a total of 9 of the 14 factors compared between the two stocks. ALB is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. ALB is more undervalued relative to its price target. Finally, EXPE has better sentiment signals based on short interest.