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Critical Comparison: Avon Products, Inc. (AVP) vs. California Resources Corporation (CRC)

Avon Products, Inc. (NYSE:AVP) shares are down more than -31.16% this year and recently decreased -4.52% or -$0.07 to settle at $1.48. California Resources Corporation (NYSE:CRC), on the other hand, is up 96.30% year to date as of 06/13/2018. It currently trades at $38.16 and has returned 1.01% during the past week.

Avon Products, Inc. (NYSE:AVP) and California Resources Corporation (NYSE:CRC) are the two most active stocks in the Personal Products 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 increase earnings at a high compound rate over time are attractive to investors. Analysts expect AVP to grow earnings at a 49.40% annual rate over the next 5 years.

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. Avon Products, Inc. (AVP) has an EBITDA margin of 6.82%. This suggests that AVP underlying business is more profitable AVP’s ROI is 12.60% while CRC has a ROI of 1.50%. The interpretation is that AVP’s business generates a higher return on investment than CRC’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. AVP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.28. Comparatively, CRC’s free cash flow per share was +1.38. On a percent-of-sales basis, AVP’s free cash flow was -2.16% while CRC converted 2.95% of its revenues into cash flow. This means that, for a given level of sales, CRC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. AVP has a current ratio of 1.20 compared to 1.20 for CRC. This means that AVP can more easily cover its most immediate liabilities over the next twelve months.

Valuation

AVP trades at a forward P/E of 6.32, and a P/S of 0.11, compared to a P/S of 0.85 for CRC. AVP is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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

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. AVP is currently priced at a -46.57% to its one-year price target of 2.77. Comparatively, CRC is -6.54% relative to its price target of 40.83. This suggests that AVP is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. AVP has a beta of 1.31 and CRC’s beta is 6.03. AVP’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. AVP has a short ratio of 4.20 compared to a short interest of 4.90 for CRC. This implies that the market is currently less bearish on the outlook for AVP.

Summary

Avon Products, Inc. (NYSE:AVP) beats California Resources Corporation (NYSE:CRC) on a total of 8 of the 13 factors compared between the two stocks. AVP is growing fastly, is more profitable, generates a higher return on investment and higher liquidity. AVP is more undervalued relative to its price target. Finally, AVP has better sentiment signals based on short interest.

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