Owens-Illinois, Inc. (NYSE:OI) shares are down more than -18.04% this year and recently decreased -1.84% or -$0.34 to settle at $18.17. Commercial Metals Company (NYSE:CMC), on the other hand, is up 12.10% year to date as of 06/13/2018. It currently trades at $23.90 and has returned -2.57% during the past week.
Owens-Illinois, Inc. (NYSE:OI) and Commercial Metals Company (NYSE:CMC) are the two most active stocks in the Packaging & Containers 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
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect OI to grow earnings at a 7.90% annual rate over the next 5 years. Comparatively, CMC is expected to grow at a 45.16% annual rate. All else equal, CMC’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 4.74% for Commercial Metals Company (CMC). OI’s ROI is 3.20% while CMC has a ROI of 3.60%. The interpretation is that CMC’s business generates a higher return on investment than OI’s.Cash Flow
Cash is king when it comes to investing. OI’s free cash flow (“FCF”) per share for the trailing twelve months was -3.10. Comparatively, CMC’s free cash flow per share was +0.23. On a percent-of-sales basis, OI’s free cash flow was -7.3% while CMC converted 0.59% of its revenues into cash flow. This means that, for a given level of sales, CMC is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. OI has a current ratio of 1.30 compared to 3.10 for CMC. This means that CMC can more easily cover its most immediate liabilities over the next twelve months. OI’s debt-to-equity ratio is 5.90 versus a D/E of 0.56 for CMC. OI is therefore the more solvent of the two companies, and has lower financial risk.Valuation
OI trades at a forward P/E of 6.02, a P/B of 2.99, and a P/S of 0.42, compared to a forward P/E of 10.08, a P/B of 1.92, and a P/S of 0.63 for CMC. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. OI is currently priced at a -28.1% to its one-year price target of 25.27. Comparatively, CMC is -8.43% relative to its price target of 26.10. This suggests that OI 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. OI has a beta of 1.40 and CMC’s beta is 1.36. CMC’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. OI has a short ratio of 2.39 compared to a short interest of 2.68 for CMC. This implies that the market is currently less bearish on the outlook for OI.Summary
Commercial Metals Company (NYSE:CMC) beats Owens-Illinois, Inc. (NYSE:OI) on a total of 9 of the 14 factors compared between the two stocks. CMC is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, HIBB has better sentiment signals based on short interest.