Allegheny Technologies Incorporated (NYSE:ATI) shares are up more than 17.98% this year and recently decreased -1.39% or -$0.4 to settle at $28.48. Pier 1 Imports, Inc. (NYSE:PIR), on the other hand, is down -30.92% year to date as of 06/13/2018. It currently trades at $2.86 and has returned 5.54% during the past week.
Allegheny Technologies Incorporated (NYSE:ATI) and Pier 1 Imports, Inc. (NYSE:PIR) are the two most active stocks in the Metal Fabrication industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect ATI to grow earnings at a 43.85% annual rate over the next 5 years. Comparatively, PIR is expected to grow at a -3.00% annual rate. All else equal, ATI’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., compared to an EBITDA margin of 5.08% for Pier 1 Imports, Inc. (PIR). ATI’s ROI is 1.40% while PIR has a ROI of 4.40%. The interpretation is that PIR’s business generates a higher return on investment than ATI’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. ATI’s free cash flow (“FCF”) per share for the trailing twelve months was -0.61. Comparatively, PIR’s free cash flow per share was +0.69. On a percent-of-sales basis, ATI’s free cash flow was -2.17% while PIR converted 3.18% of its revenues into cash flow. This means that, for a given level of sales, PIR is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. ATI has a current ratio of 2.70 compared to 2.30 for PIR. This means that ATI can more easily cover its most immediate liabilities over the next twelve months. ATI’s debt-to-equity ratio is 0.87 versus a D/E of 0.72 for PIR. ATI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
ATI trades at a forward P/E of 13.81, a P/B of 1.93, and a P/S of 1.01, compared to a forward P/E of 114.40, a P/B of 0.82, and a P/S of 0.13 for PIR. ATI is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. ATI is currently priced at a -13.96% to its one-year price target of 33.10. Comparatively, PIR is 6.32% relative to its price target of 2.69. This suggests that ATI is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. ATI has a beta of 2.43 and PIR’s beta is 1.58. PIR’s shares are therefore the less volatile of the two stocks.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. ATI has a short ratio of 11.83 compared to a short interest of 6.35 for PIR. This implies that the market is currently less bearish on the outlook for PIR.Summary
Pier 1 Imports, Inc. (NYSE:PIR) beats Allegheny Technologies Incorporated (NYSE:ATI) on a total of 9 of the 14 factors compared between the two stocks. PIR is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, PIR is the cheaper of the two stocks on book value and sales basis, Finally, PIR has better sentiment signals based on short interest.