Steel Dynamics, Inc. (NASDAQ:STLD) shares are up more than 14.03% this year and recently decreased -1.21% or -$0.6 to settle at $49.18. Peabody Energy Corporation (NYSE:BTU), on the other hand, is up 16.46% year to date as of 06/13/2018. It currently trades at $45.85 and has returned -2.03% during the past week.
Steel Dynamics, Inc. (NASDAQ:STLD) and Peabody Energy Corporation (NYSE:BTU) are the two most active stocks in the Steel & Iron industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.Growth
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect STLD to grow earnings at a 13.21% 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., compared to an EBITDA margin of 0.58% for Peabody Energy Corporation (BTU). STLD’s ROI is 13.20% while BTU has a ROI of 25.30%. The interpretation is that BTU’s business generates a higher return on investment than STLD’s.Cash Flow
Cash is king when it comes to investing. STLD’s free cash flow (“FCF”) per share for the trailing twelve months was +0.38. Comparatively, BTU’s free cash flow per share was +3.48. On a percent-of-sales basis, STLD’s free cash flow was 0.94% while BTU converted 7.83% of its revenues into cash flow. This means that, for a given level of sales, BTU 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. STLD has a current ratio of 4.20 compared to 2.20 for BTU. This means that STLD can more easily cover its most immediate liabilities over the next twelve months. STLD’s debt-to-equity ratio is 0.68 versus a D/E of 0.40 for BTU. STLD is therefore the more solvent of the two companies, and has lower financial risk.Valuation
STLD trades at a forward P/E of 10.70, a P/B of 3.35, and a P/S of 1.19, compared to a forward P/E of 24.36, a P/B of 1.54, and a P/S of 1.01 for BTU. STLD 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
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. STLD is currently priced at a -8.81% to its one-year price target of 53.93. Comparatively, BTU is -8.3% relative to its price target of 50.00. This suggests that STLD is the better investment over the next year.
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. STLD has a short ratio of 3.33 compared to a short interest of 2.20 for BTU. This implies that the market is currently less bearish on the outlook for BTU.Summary
Peabody Energy Corporation (NYSE:BTU) beats Steel Dynamics, Inc. (NASDAQ:STLD) on a total of 9 of the 14 factors compared between the two stocks. BTU is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BTU is the cheaper of the two stocks on book value and sales basis, Finally, BTU has better sentiment signals based on short interest.