Twenty-First Century Fox, Inc. (NASDAQ:FOXA) shares are up more than 4.84% this year and recently increased 1.69% or $0.6 to settle at $36.20. Twenty-First Century Fox, Inc. (NASDAQ:FOX), on the other hand, is up 4.92% year to date as of 01/10/2018. It currently trades at $35.80 and has returned -1.02% during the past week.
Twenty-First Century Fox, Inc. (NASDAQ:FOXA) and Twenty-First Century Fox, Inc. (NASDAQ:FOX) are the two most active stocks in the Entertainment – Diversified 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.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect FOXA to grow earnings at a 7.35% annual rate over the next 5 years. Comparatively, FOX is expected to grow at a 9.25% annual rate. All else equal, FOX’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 25.98% for Twenty-First Century Fox, Inc. (FOX).
The amount of free cash flow available to investors is ultimately what determines the value of a stock. FOXA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.32. Comparatively, FOX’s free cash flow per share was +0.32. On a percent-of-sales basis, FOXA’s free cash flow was 2.08% while FOX converted 2.08% of its revenues into cash flow. This means that, for a given level of sales, FOXA is able to generate more free cash flow for investors.
FOXA trades at a forward P/E of 16.21, a P/B of 4.11, and a P/S of 2.30, compared to a forward P/E of 15.77, a P/B of 4.07, for FOX. FOXA 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
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. FOXA is currently priced at a -3.67% to its one-year price target of 37.58. Comparatively, FOX is -13.73% relative to its price target of 41.50. This suggests that FOX 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 2.40 for FOXA and 2.00 for FOX, which implies that analysts are more bullish on the outlook for FOXA.
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. FOXA has a short ratio of 1.59 compared to a short interest of 2.30 for FOX. This implies that the market is currently less bearish on the outlook for FOXA.
Twenty-First Century Fox, Inc. (NASDAQ:FOX) beats Twenty-First Century Fox, Inc. (NASDAQ:FOXA) on a total of 9 of the 14 factors compared between the two stocks. FOX generates a higher return on investment, is more profitable and has lower financial risk. In terms of valuation, FOX is the cheaper of the two stocks on an earnings, book value and sales basis, FOX is more undervalued relative to its price target. Finally, CBS has better sentiment signals based on short interest.