The AES Corporation (NYSE:AES) shares are up more than 21.24% this year and recently increased 0.69% or $0.09 to settle at $13.13. Akamai Technologies, Inc. (NASDAQ:AKAM), on the other hand, is up 24.46% year to date as of 06/13/2018. It currently trades at $80.95 and has returned 3.77% during the past week.
The AES Corporation (NYSE:AES) and Akamai Technologies, Inc. (NASDAQ:AKAM) are the two most active stocks in the Electric Utilities 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 AES to grow earnings at a 8.40% annual rate over the next 5 years. Comparatively, AKAM is expected to grow at a 15.87% annual rate. All else equal, AKAM’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. EBITDA margin of 27.21% for Akamai Technologies, Inc. (AKAM). AES’s ROI is -0.80% while AKAM has a ROI of 6.10%. The interpretation is that AKAM’s business generates a higher return on investment than AES’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. AES’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, AKAM’s free cash flow per share was +0.46. On a percent-of-sales basis, AES’s free cash flow was -0.63% while AKAM converted 3.14% of its revenues into cash flow. This means that, for a given level of sales, AKAM is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. AES has a current ratio of 1.10 compared to 1.30 for AKAM. This means that AKAM can more easily cover its most immediate liabilities over the next twelve months. AES’s debt-to-equity ratio is 6.17 versus a D/E of 0.20 for AKAM. AES is therefore the more solvent of the two companies, and has lower financial risk.Valuation
AES trades at a forward P/E of 10.06, a P/B of 2.72, and a P/S of 0.81, compared to a forward P/E of 21.46, a P/B of 4.07, and a P/S of 5.36 for AKAM. AES 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. AES is currently priced at a 0.15% to its one-year price target of 13.11. Comparatively, AKAM is 2.05% relative to its price target of 79.32. This suggests that AES is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. AES has a beta of 1.18 and AKAM’s beta is 0.59. AKAM’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. AES has a short ratio of 2.63 compared to a short interest of 2.49 for AKAM. This implies that the market is currently less bearish on the outlook for AKAM.Summary
Akamai Technologies, Inc. (NASDAQ:AKAM) beats The AES Corporation (NYSE:AES) on a total of 10 of the 14 factors compared between the two stocks. AKAM , 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, AES 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.