Global

Should You Buy Atkore International Group Inc. (ATKR) or Tenet Healthcare Corporation (THC)?

Atkore International Group Inc. (NYSE:ATKR) shares are up more than 3.08% this year and recently decreased -2.04% or -$0.46 to settle at $22.11. Tenet Healthcare Corporation (NYSE:THC), on the other hand, is up 143.87% year to date as of 06/13/2018. It currently trades at $36.97 and has returned 1.59% during the past week.

Atkore International Group Inc. (NYSE:ATKR) and Tenet Healthcare Corporation (NYSE:THC) are the two most active stocks in the Industrial Electrical Equipment 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 ATKR to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, THC is expected to grow at a 5.50% annual rate. All else equal, ATKR’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 10.33% for Tenet Healthcare Corporation (THC). ATKR’s ROI is 11.90% while THC has a ROI of 6.60%. The interpretation is that ATKR’s business generates a higher return on investment than THC’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. ATKR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.09. Comparatively, THC’s free cash flow per share was -0.29. On a percent-of-sales basis, ATKR’s free cash flow was -0.28% while THC converted -0.15% of its revenues into cash flow. This means that, for a given level of sales, THC 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. ATKR has a current ratio of 2.50 compared to 1.20 for THC. This means that ATKR can more easily cover its most immediate liabilities over the next twelve months.

Valuation

ATKR trades at a forward P/E of 8.63, a P/B of 18.27, and a P/S of 0.69, compared to a forward P/E of 17.81, and a P/S of 0.20 for THC. ATKR is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S 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

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. ATKR is currently priced at a -11.2% to its one-year price target of 24.90. Comparatively, THC is 19.49% relative to its price target of 30.94. This suggests that ATKR is the better investment over the next year.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. ATKR has a short ratio of 1.26 compared to a short interest of 7.48 for THC. This implies that the market is currently less bearish on the outlook for ATKR.

Summary




Atkore International Group Inc. (NYSE:ATKR) beats Tenet Healthcare Corporation (NYSE:THC) on a total of 10 of the 14 factors compared between the two stocks. ATKR is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. ATKR is more undervalued relative to its price target. Finally, ATKR has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Schlumberger Limited (SLB) Sentiment Based on the ... Schlumberger Limited (NYSE:SLB) fell by -0.17% in Wednesday’s trading session from $64.11 to $64.00. The price has fallen in 6 of the last 10 days and...
Choosing Between Hot Stocks: Micron Technology, In... The shares of Micron Technology, Inc. have increased by more than 6.32% this year alone. The shares recently went up by 4.92% or $2.05 and now trades ...
What Recent Ownership Trends Suggest About Encana ... Recent insider trends for Encana Corporation (NYSE:ECA) have caught the attention of investors. Analysts monitor insider data to understand the sentim...
Should You Buy Cisco Systems, Inc. (CSCO) or Activ... Cisco Systems, Inc. (NASDAQ:CSCO) and Activision Blizzard, Inc. (NASDAQ:ATVI) are the two most active stocks in the Networking & Communication Dev...
Choosing Between Hot Stocks: Companhia de Saneamen... The shares of Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP have increased by more than 8.61% this year alone. The shares recently we...