Black Knight, Inc. (NYSE:BKI), on the other hand, is up 9.88% year to date as of 11/13/2017. It currently trades at $46.15 and has returned 0.00% during the past week.
KapStone Paper and Packaging Corporation (NYSE:KS) and Black Knight, Inc. (NYSE:BKI) are the two most active stocks in the Paper & Paper Products industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect KS to grow earnings at a 19.39% annual rate over the next 5 years. Comparatively, BKI is expected to grow at a 16.98% annual rate. All else equal, KS’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. KapStone Paper and Packaging Corporation (KS) has an EBITDA margin of 10.38%. This suggests that KS underlying business is more profitable KS’s ROI is 5.40% while BKI has a ROI of 7.20%. The interpretation is that BKI’s business generates a higher return on investment than KS’s.
If there’s one thing investors care more about than earnings, it’s cash flow. KS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.84. Comparatively, BKI’s free cash flow per share was +1.14. On a percent-of-sales basis, KS’s free cash flow was 2.65% while BKI converted 17.04% of its revenues into cash flow. This means that, for a given level of sales, BKI 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. KS has a current ratio of 2.10 compared to 1.60 for BKI. This means that KS can more easily cover its most immediate liabilities over the next twelve months. KS’s debt-to-equity ratio is 1.65 versus a D/E of 0.97 for BKI. KS is therefore the more solvent of the two companies, and has lower financial risk.
KS trades at a forward P/E of 13.16, a P/B of 2.16, and a P/S of 0.64, compared to a forward P/E of 28.56, a P/B of 3.61, and a P/S of 6.84 for BKI. KS 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. KS is currently priced at a -17.33% to its one-year price target of 25.45. Comparatively, BKI is -5.99% relative to its price target of 49.09. This suggests that KS 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 2.00 for KS and 1.90 for BKI, which implies that analysts are more bullish on the outlook for KS.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. KS has a short ratio of 2.99 compared to a short interest of 1.52 for BKI. This implies that the market is currently less bearish on the outlook for BKI.
Black Knight, Inc. (NYSE:BKI) beats KapStone Paper and Packaging Corporation (NYSE:KS) on a total of 7 of the 14 factors compared between the two stocks. BKI is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, KS is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, BKI has better sentiment signals based on short interest.