Plexus Corp. (NASDAQ:PLXS) and Kimball International, Inc. (NASDAQ:KBAL) are the two most active stocks in the Printed Circuit Boards 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.
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 PLXS to grow earnings at a 10.53% annual rate over the next 5 years. Comparatively, KBAL is expected to grow at a 17.00% annual rate. All else equal, KBAL’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Plexus Corp. (PLXS) has an EBITDA margin of 6.85%, compared to an EBITDA margin of 10.17% for Kimball International, Inc. (KBAL). This suggests that KBAL underlying business is more profitable. PLXS’s ROI is 7.50% while KBAL has a ROI of 20.10%. The interpretation is that KBAL’s business generates a higher return on investment than PLXS’s.
If there’s one thing investors care more about than earnings, it’s cash flow. PLXS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.19. Comparatively, KBAL’s free cash flow per share was -. On a percent-of-sales basis, PLXS’s free cash flow was 0.25% while KBAL converted 0% of its revenues into cash flow. This means that, for a given level of sales, PLXS 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. PLXS has a current ratio of 1.80 compared to 1.70 for KBAL. This means that PLXS can more easily cover its most immediate liabilities over the next twelve months. PLXS’s debt-to-equity ratio is 0.30 versus a D/E of 0.02 for KBAL. PLXS is therefore the more solvent of the two companies, and has lower financial risk.
PLXS trades at a forward P/E of 14.55, a P/B of 1.71, and a P/S of 0.68, compared to a forward P/B of 3.47, and a P/S of 0.91 for KBAL. 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. PLXS is currently priced at a -11.7% to its one-year price target of $57.00. Comparatively, KBAL is 9.53% relative to its price target of $15.00. This suggests that PLXS 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 3.10 for PLXS and 1.00 for KBAL, which implies that analysts are more bullish on the outlook for PLXS.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. PLXS has a beta of 0.95 and KBAL’s beta is 1.46. PLXS’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. PLXS has a short ratio of 2.95 compared to a short interest of 2.25 for KBAL. This implies that the market is currently less bearish on the outlook for KBAL.
Plexus Corp. (NASDAQ:PLXS) beats Kimball International, Inc. (NASDAQ:KBAL) on a total of 7 of the 13 factors compared between the two stocks. PLXS has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, PLXS is the cheaper of the two stocks on book value and sales basis, PLXS is more undervalued relative to its price target. Finally, CCC has better sentiment signals based on short interest.