FirstEnergy Corp. (NYSE:FE) shares are up more than 9.83% this year and recently increased 0.93% or $0.31 to settle at $33.63. The Michaels Companies, Inc. (NASDAQ:MIK), on the other hand, is down -9.34% year to date as of 06/13/2018. It currently trades at $21.93 and has returned 13.04% during the past week.
FirstEnergy Corp. (NYSE:FE) and The Michaels Companies, Inc. (NASDAQ:MIK) are the two most active stocks in the Electric Utilities 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
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect FE to grow earnings at a -6.92% annual rate over the next 5 years. Comparatively, MIK is expected to grow at a 11.10% annual rate. All else equal, MIK’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. 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 16.01% for The Michaels Companies, Inc. (MIK). FE’s ROI is -3.00% while MIK has a ROI of 43.40%. The interpretation is that MIK’s business generates a higher return on investment than FE’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. FE’s free cash flow (“FCF”) per share for the trailing twelve months was -3.43. Comparatively, MIK’s free cash flow per share was +1.99. On a percent-of-sales basis, FE’s free cash flow was -11.67% while MIK converted 6.76% of its revenues into cash flow. This means that, for a given level of sales, MIK 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. FE has a current ratio of 0.50 compared to 1.80 for MIK. This means that MIK can more easily cover its most immediate liabilities over the next twelve months.Valuation
FE trades at a forward P/E of 13.57, a P/B of 2.22, and a P/S of 1.19, compared to a forward P/E of 8.84, and a P/S of 0.71 for MIK. FE is the expensive of the two stocks on an earnings, book value and sales basis. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FE is currently priced at a -7.76% to its one-year price target of 36.46. Comparatively, MIK is -6.2% relative to its price target of 23.38. This suggests that FE 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. FE has a beta of 0.25 and MIK’s beta is 1.25. FE’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. FE has a short ratio of 0.00 compared to a short interest of 5.19 for MIK. This implies that the market is currently less bearish on the outlook for FE.Summary
The Michaels Companies, Inc. (NASDAQ:MIK) beats FirstEnergy Corp. (NYSE:FE) on a total of 10 of the 14 factors compared between the two stocks. MIK , 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. In terms of valuation, MIK is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, AKAM has better sentiment signals based on short interest.