- H. Glatfelter Company (NYSE:GLT) and Schweitzer-Mauduit International, Inc. (NYSE:SWM) are the two most active stocks in the Paper & Paper Products 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.
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 GLT to grow earnings at a 8.57% annual rate over the next 5 years. Comparatively, SWM is expected to grow at a 10.00% annual rate. All else equal, SWM’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. P. H. Glatfelter Company (GLT) has an EBITDA margin of 5.31%, compared to an EBITDA margin of 17.52% for Schweitzer-Mauduit International, Inc. (SWM). This suggests that SWM underlying business is more profitable. GLT’s ROI is 3.70% while SWM has a ROI of 9.60%. The interpretation is that SWM’s business generates a higher return on investment than GLT’s.
Cash is king when it comes to investing. GLT’s free cash flow (“FCF”) per share for the trailing twelve months was -0.43. Comparatively, SWM’s free cash flow per share was -0.07. On a percent-of-sales basis, GLT’s free cash flow was -1.16% while SWM converted -0% of its revenues into cash flow. This means that, for a given level of sales, SWM 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. GLT has a current ratio of 1.60 compared to 3.10 for SWM. This means that SWM can more easily cover its most immediate liabilities over the next twelve months. GLT’s debt-to-equity ratio is 0.65 versus a D/E of 1.32 for SWM. SWM is therefore the more solvent of the two companies, and has lower financial risk.
GLT trades at a forward P/E of 11.47, a P/B of 1.10, and a P/S of 0.48, compared to a forward P/E of 11.30, a P/B of 2.14, and a P/S of 1.32 for SWM. 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. GLT is currently priced at a -23.17% to its one-year price target of $22.40. Comparatively, SWM is -19.98% relative to its price target of $48.00. This suggests that GLT is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for GLT and 1.00 for SWM, which implies that analysts are more bullish on the outlook for GLT.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. GLT has a beta of 1.37 and SWM’s beta is 1.20. SWM’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. GLT has a short ratio of 3.15 compared to a short interest of 0.69 for SWM. This implies that the market is currently less bearish on the outlook for SWM.
Schweitzer-Mauduit International, Inc. (NYSE:SWM) beats P. H. Glatfelter Company (NYSE:GLT) on a total of 10 of the 14 factors compared between the two stocks. SWM has lower financial risk, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, SWM has better sentiment signals based on short interest.