Apple Inc. (NASDAQ:AAPL) shares are up more than 3.58% this year and recently increased 0.57% or $0.99 to settle at $175.28. Energous Corporation (NASDAQ:WATT), on the other hand, is up 18.35% year to date as of 01/10/2018. It currently trades at $23.02 and has returned 5.45% during the past week.
Apple Inc. (NASDAQ:AAPL) and Energous Corporation (NASDAQ:WATT) are the two most active stocks in the Electronic Equipment 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 consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect AAPL to grow earnings at a 10.70% annual rate over the next 5 years.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Apple Inc. (AAPL) has an EBITDA margin of 32.39%. This suggests that AAPL underlying business is more profitable AAPL’s ROI is 18.30% while WATT has a ROI of -160.20%. The interpretation is that AAPL’s business generates a higher return on investment than WATT’s.
The value of a stock is simply the present value of its future free cash flows. AAPL’s free cash flow (“FCF”) per share for the trailing twelve months was +1.64. Comparatively, WATT’s free cash flow per share was -0.37. On a percent-of-sales basis, AAPL’s free cash flow was 3.64% while WATT converted -0.57% of its revenues into cash flow. This means that, for a given level of sales, AAPL is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. AAPL has a current ratio of 1.30 compared to 5.50 for WATT. This means that WATT can more easily cover its most immediate liabilities over the next twelve months. AAPL’s debt-to-equity ratio is 0.86 versus a D/E of 0.00 for WATT. AAPL is therefore the more solvent of the two companies, and has lower financial risk.
AAPL trades at a forward P/E of 14.38, a P/B of 6.73, and a P/S of 3.94, compared to a P/B of 26.16, and a P/S of 390.81 for WATT. 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. AAPL is currently priced at a -5.92% to its one-year price target of 186.30. Comparatively, WATT is -34.73% relative to its price target of 35.27. This suggests that WATT 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 AAPL and 1.80 for WATT, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. AAPL has a beta of 1.39 and WATT’s beta is 1.93. AAPL’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. AAPL has a short ratio of 1.96 compared to a short interest of 1.49 for WATT. This implies that the market is currently less bearish on the outlook for WATT.
Apple Inc. (NASDAQ:AAPL) beats Energous Corporation (NASDAQ:WATT) on a total of 8 of the 14 factors compared between the two stocks. AAPL is growing fastly, 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, AAPL is the cheaper of the two stocks on book value and sales basis, Finally, TWX has better sentiment signals based on short interest.