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Warrior Met Coal, Inc. (HCC) vs. BofI Holding, Inc. (BOFI): Which is the Better Investment?

Warrior Met Coal, Inc. (NYSE:HCC) shares are up more than 41.91% this year and recently decreased -3.52% or -$1.02 to settle at $27.98. BofI Holding, Inc. (NASDAQ:BOFI), on the other hand, is up 41.67% year to date as of 06/13/2018. It currently trades at $42.36 and has returned -5.13% during the past week.

Warrior Met Coal, Inc. (NYSE:HCC) and BofI Holding, Inc. (NASDAQ:BOFI) are the two most active stocks in the Property & Casualty Insurance 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

Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, BOFI is expected to grow at a 10.00% annual rate. All else equal, BOFI’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 85.07% for BofI Holding, Inc. (BOFI). HCC’s ROI is 55.80% while BOFI has a ROI of 23.30%. The interpretation is that HCC’s business generates a higher return on investment than BOFI’s.

Cash Flow



Earnings don’t always accurately reflect the amount of cash that a company brings in. HCC’s free cash flow (“FCF”) per share for the trailing twelve months was +3.17. Comparatively, BOFI’s free cash flow per share was +0.77. On a percent-of-sales basis, HCC’s free cash flow was 14.45% while BOFI converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, HCC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

HCC’s debt-to-equity ratio is 0.80 versus a D/E of 0.06 for BOFI. HCC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

HCC trades at a forward P/E of 7.53, a P/B of 2.54, and a P/S of 1.16, compared to a forward P/E of 13.45, a P/B of 2.96, and a P/S of 5.86 for BOFI. HCC 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

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. HCC is currently priced at a -5.98% to its one-year price target of 29.76. Comparatively, BOFI is -9.87% relative to its price target of 47.00. This suggests that BOFI is the better investment over the next year.

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. HCC has a short ratio of 7.07 compared to a short interest of 17.46 for BOFI. This implies that the market is currently less bearish on the outlook for HCC.

Summary

Warrior Met Coal, Inc. (NYSE:HCC) beats BofI Holding, Inc. (NASDAQ:BOFI) on a total of 9 of the 14 factors compared between the two stocks. HCC generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, HCC is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, HCC has better sentiment signals based on short interest.

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