CF Industries Holdings, Inc. (NYSE:CF) shares are up more than 4.16% this year and recently increased 1.75% or $0.76 to settle at $44.31. Endurance International Group Holdings, Inc. (NASDAQ:EIGI), on the other hand, is up 10.71% year to date as of 06/13/2018. It currently trades at $9.30 and has returned 2.76% during the past week.
CF Industries Holdings, Inc. (NYSE:CF) and Endurance International Group Holdings, Inc. (NASDAQ:EIGI) are the two most active stocks in the Agricultural 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 CF to grow earnings at a 58.44% annual rate over the next 5 years. Comparatively, EIGI is expected to grow at a 15.23% annual rate. All else equal, CF’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 21.68% for Endurance International Group Holdings, Inc. (EIGI). CF’s ROI is 3.10% while EIGI has a ROI of 2.00%. The interpretation is that CF’s business generates a higher return on investment than EIGI’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. CF’s free cash flow (“FCF”) per share for the trailing twelve months was +0.61. Comparatively, EIGI’s free cash flow per share was +0.34. On a percent-of-sales basis, CF’s free cash flow was 3.45% while EIGI converted 4.12% of its revenues into cash flow. This means that, for a given level of sales, EIGI is able to generate more free cash flow for investors.Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. CF has a current ratio of 2.70 compared to 0.40 for EIGI. This means that CF can more easily cover its most immediate liabilities over the next twelve months. CF’s debt-to-equity ratio is 0.00 versus a D/E of 13.05 for EIGI. EIGI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CF trades at a forward P/E of 25.36, a P/B of 2.88, and a P/S of 2.56, compared to a forward P/E of 1033.33, a P/B of 9.03, and a P/S of 1.13 for EIGI. 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. CF is currently priced at a 4.11% to its one-year price target of 42.56. Comparatively, EIGI is 16.83% relative to its price target of 7.96. This suggests that CF is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CF has a beta of 1.06 and EIGI’s beta is 1.98. CF’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. CF has a short ratio of 5.63 compared to a short interest of 6.89 for EIGI. This implies that the market is currently less bearish on the outlook for CF.Summary
CF Industries Holdings, Inc. (NYSE:CF) beats Endurance International Group Holdings, Inc. (NASDAQ:EIGI) on a total of 12 of the 14 factors compared between the two stocks. CF is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, CF is the cheaper of the two stocks on an earnings and book value, CF is more undervalued relative to its price target. Finally, CF has better sentiment signals based on short interest.