Dover Corporation (NYSE:DOV) shares are up more than 2.50% this year and recently increased 0.79% or $0.81 to settle at $103.51. Welbilt, Inc. (NYSE:WBT), on the other hand, is down -1.49% year to date as of 01/11/2018. It currently trades at $23.16 and has returned -1.86% during the past week.
Dover Corporation (NYSE:DOV) and Welbilt, Inc. (NYSE:WBT) are the two most active stocks in the Diversified Machinery 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect DOV to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, WBT is expected to grow at a 14.65% annual rate. All else equal, DOV’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. , compared to an EBITDA margin of 17.36% for Welbilt, Inc. (WBT). DOV’s ROI is 8.50% while WBT has a ROI of 14.10%. The interpretation is that WBT’s business generates a higher return on investment than DOV’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. DOV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.86. Comparatively, WBT’s free cash flow per share was +0.42. On a percent-of-sales basis, DOV’s free cash flow was 1.97% while WBT converted 4.02% of its revenues into cash flow. This means that, for a given level of sales, WBT 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. DOV has a current ratio of 1.30 compared to 1.40 for WBT. This means that WBT can more easily cover its most immediate liabilities over the next twelve months. DOV’s debt-to-equity ratio is 0.81 versus a D/E of 29.48 for WBT. WBT is therefore the more solvent of the two companies, and has lower financial risk.
DOV trades at a forward P/E of 22.82, a P/B of 3.77, and a P/S of 2.14, compared to a forward P/E of 24.80, a P/B of 72.37, and a P/S of 2.25 for WBT. DOV 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. DOV is currently priced at a 5.09% to its one-year price target of 98.50. Comparatively, WBT is -6.73% relative to its price target of 24.83. This suggests that WBT 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 2.50 for DOV and 2.20 for WBT, which implies that analysts are more bullish on the outlook for DOV.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. DOV has a short ratio of 3.54 compared to a short interest of 16.60 for WBT. This implies that the market is currently less bearish on the outlook for DOV.
Dover Corporation (NYSE:DOV) beats Welbilt, Inc. (NYSE:WBT) on a total of 8 of the 14 factors compared between the two stocks. DOV is growing fastly, is more profitable, has higher cash flow per share and has lower financial risk. In terms of valuation, DOV is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, DOV has better sentiment signals based on short interest.