The shares of Cleveland-Cliffs Inc. have increased by more than 22.19% this year alone. The shares recently went up by 9.44% or $0.76 and now trades at $8.81. The shares of NOW Inc. (NYSE:DNOW), has jumped by 12.06% year to date as of 01/11/2018. The shares currently trade at $12.36 and have been able to report a change of 5.46% over the past one week.
The stock of Cleveland-Cliffs Inc. and NOW Inc. were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.
Profitability and Returns
Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. CLF has an EBITDA margin of 15.7%, this implies that the underlying business of CLF is more profitable. The ROI of CLF is 59.00% while that of DNOW is -18.10%. These figures suggest that CLF ventures generate a higher ROI than that of DNOW.
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, CLF’s free cash flow per share is a positive 3.09, while that of DNOW is negative -1.64.
Liquidity and Financial Risk
The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for CLF is 1.90 and that of DNOW is 2.70. This implies that it is easier for CLF to cover its immediate obligations over the next 12 months than DNOW.
CLF currently trades at a forward P/E of 9.89, and a P/S of 1.05 while DNOW trades at a forward P/E of 87.04, a P/B of 1.12, and a P/S of 0.53. This means that looking at the earnings, book values and sales basis, CLF is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.
Analyst Price Targets and Opinions
The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of CLF is currently at a 29.37% to its one-year price target of 6.81. Looking at its rival pricing, DNOW is at a -8.44% relative to its price target of 13.50. This figure implies that over the next one year, DNOW is a better investment.
When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), CLF is given a 2.90 while 2.60 placed for DNOW. This means that analysts are more bullish on the outlook for CLF stocks.
Insider Activity and Investor Sentiment
Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for CLF is 4.48 while that of DNOW is just 10.70. This means that analysts are more bullish on the forecast for CLF stock.
The stock of NOW Inc. defeats that of Cleveland-Cliffs Inc. when the two are compared, with DNOW taking 5 out of the total factors that were been considered. DNOW happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, DNOW is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for DNOW is better on when it is viewed on short interest.