U.S. Silica Holdings, Inc. (NYSE:SLCA) shares are down more than -41.80% this year and recently decreased -0.06% or -$0.02 to settle at $32.99. Cloud Peak Energy Inc. (NYSE:CLD), on the other hand, is down -25.67% year to date as of 11/27/2017. It currently trades at $4.17 and has returned -0.48% during the past week.
U.S. Silica Holdings, Inc. (NYSE:SLCA) and Cloud Peak Energy Inc. (NYSE:CLD) are the two most active stocks in the Industrial Metals & Minerals 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, CLD is expected to grow at a 17.30% annual rate. All else equal, CLD’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., compared to an EBITDA margin of 7.79% for Cloud Peak Energy Inc. (CLD). SLCA’s ROI is -0.90% while CLD has a ROI of 4.90%. The interpretation is that CLD’s business generates a higher return on investment than SLCA’s.
The value of a stock is simply the present value of its future free cash flows. SLCA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.38. Comparatively, CLD’s free cash flow per share was +0.53. On a percent-of-sales basis, SLCA’s free cash flow was -0.01% while CLD converted 0% of its revenues into cash flow. This means that, for a given level of sales, CLD 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. SLCA has a current ratio of 3.70 compared to 2.10 for CLD. This means that SLCA can more easily cover its most immediate liabilities over the next twelve months. SLCA’s debt-to-equity ratio is 0.38 versus a D/E of 0.41 for CLD. CLD is therefore the more solvent of the two companies, and has lower financial risk.
SLCA trades at a forward P/E of 10.25, a P/B of 1.98, and a P/S of 2.52, compared to a P/B of 0.32, and a P/S of 0.35 for CLD. SLCA is the expensive 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. SLCA is currently priced at a -23.97% to its one-year price target of 43.39. Comparatively, CLD is -3.7% relative to its price target of 4.33. This suggests that SLCA 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 1.80 for SLCA and 2.80 for CLD, which implies that analysts are more bullish on the outlook for CLD.
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. SLCA has a beta of 2.31 and CLD’s beta is 1.62. CLD’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. SLCA has a short ratio of 5.06 compared to a short interest of 4.85 for CLD. This implies that the market is currently less bearish on the outlook for CLD.
Cloud Peak Energy Inc. (NYSE:CLD) beats U.S. Silica Holdings, Inc. (NYSE:SLCA) on a total of 9 of the 14 factors compared between the two stocks. CLD is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, CLD is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CLD has better sentiment signals based on short interest.