The shares of Cisco Systems, Inc. have increased by more than 4.70% this year alone. The shares recently went up by 0.48% or $0.19 and now trades at $40.10. The shares of DCP Midstream, LP (NYSE:DCP), has jumped by 14.40% year to date as of 01/11/2018. The shares currently trade at $41.56 and have been able to report a change of 5.94% over the past one week.
The stock of Cisco Systems, Inc. and DCP Midstream, LP 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.
Next 5Y EPS Growth: 9.30% versus -3.77%
When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that CSCO will grow it’s earning at a 9.30% annual rate in the next 5 years. This is in contrast to DCP which will have a positive growth at a -3.77% annual rate. This means that the higher growth rate of CSCO implies a greater potential for capital appreciation over the years.
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. CSCO has an EBITDA margin of 27.61%, this implies that the underlying business of CSCO is more profitable. The ROI of CSCO is 9.30% while that of DCP is 1.60%. These figures suggest that CSCO ventures generate a higher ROI than that of DCP.
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, CSCO’s free cash flow per share is a positive 3.09, while that of DCP is positive 6.12.
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 CSCO is 2.90 and that of DCP is 0.70. This implies that it is easier for CSCO to cover its immediate obligations over the next 12 months than DCP. The debt ratio of CSCO is 0.55 compared to 0.76 for DCP. DCP can be able to settle its long-term debts and thus is a lower financial risk than CSCO.
CSCO currently trades at a forward P/E of 15.46, a P/B of 3.03, and a P/S of 4.16 while DCP trades at a forward P/E of 32.55, a P/B of 0.87, and a P/S of 0.93. This means that looking at the earnings, book values and sales basis, CSCO 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 CSCO is currently at a 3.22% to its one-year price target of 38.85. Looking at its rival pricing, DCP is at a 11.18% relative to its price target of 37.38. This figure implies that over the next one year, DCP 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), CSCO is given a 2.10 while 2.80 placed for DCP. This means that analysts are more bullish on the outlook for DCP 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 CSCO is 3.05 while that of DCP is just 8.11. This means that analysts are more bullish on the forecast for CSCO stock.
The stock of DCP Midstream, LP defeats that of Cisco Systems, Inc. when the two are compared, with DCP taking 4 out of the total factors that were been considered. DCP 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, DCP is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for DCP is better on when it is viewed on short interest.