Ciena Corporation (NYSE:CIEN), on the other hand, is up 18.59% year to date as of 06/13/2018. It currently trades at $24.82 and has returned 1.43% during the past week.
Office Depot, Inc. (NASDAQ:ODP) and Ciena Corporation (NYSE:CIEN) are the two most active stocks in the Specialty Retail, Other industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.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 ODP to grow earnings at a -6.90% annual rate over the next 5 years. Comparatively, CIEN is expected to grow at a 11.09% annual rate. All else equal, CIEN’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 9.56% for Ciena Corporation (CIEN). ODP’s ROI is 3.10% while CIEN has a ROI of 41.80%. The interpretation is that CIEN’s business generates a higher return on investment than ODP’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. ODP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.28. Comparatively, CIEN’s free cash flow per share was +0.21. On a percent-of-sales basis, ODP’s free cash flow was 1.53% while CIEN converted 1.07% of its revenues into cash flow. This means that, for a given level of sales, ODP 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. ODP has a current ratio of 1.40 compared to 2.00 for CIEN. This means that CIEN can more easily cover its most immediate liabilities over the next twelve months. ODP’s debt-to-equity ratio is 0.83 versus a D/E of 0.54 for CIEN. ODP is therefore the more solvent of the two companies, and has lower financial risk.Valuation
ODP trades at a forward P/E of 8.51, a P/B of 0.75, and a P/S of 0.16, compared to a forward P/E of 14.39, a P/B of 2.05, and a P/S of 1.26 for CIEN. ODP is the cheaper 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
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. ODP is currently priced at a 7.38% to its one-year price target of 2.71. Comparatively, CIEN is -16.74% relative to its price target of 29.81. This suggests that CIEN 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. ODP has a beta of 2.64 and CIEN’s beta is 1.44. CIEN’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. ODP has a short ratio of 3.20 compared to a short interest of 4.88 for CIEN. This implies that the market is currently less bearish on the outlook for ODP.Summary
Ciena Corporation (NYSE:CIEN) beats Office Depot, Inc. (NASDAQ:ODP) on a total of 8 of the 14 factors compared between the two stocks. CIEN has higher cash flow per share, is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, ODP is the cheaper of the two stocks on an earnings, book value and sales basis, CIEN is more undervalued relative to its price target. Finally, EIX has better sentiment signals based on short interest.