Owens Corning (NYSE:OC) shares are up more than 3.86% this year and recently increased 2.13% or $1.99 to settle at $95.49. NCI Building Systems, Inc. (NYSE:NCS), on the other hand, is down -1.04% year to date as of 01/10/2018. It currently trades at $19.10 and has returned -2.05% during the past week.

Owens Corning (NYSE:OC) and NCI Building Systems, Inc. (NYSE:NCS) are the two most active stocks in the General Building Materials industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

**Growth**

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 OC to grow earnings at a 12.70% annual rate over the next 5 years. Comparatively, NCS is expected to grow at a 19.30% annual rate. All else equal, NCS’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 8.74% for NCI Building Systems, Inc. (NCS). OC’s ROI is 8.60% while NCS has a ROI of 11.70%. The interpretation is that NCS’s business generates a higher return on investment than OC’s.

**Cash Flow **

The amount of free cash flow available to investors is ultimately what determines the value of a stock. OC’s free cash flow (“FCF”) per share for the trailing twelve months was +1.78. Comparatively, NCS’s free cash flow per share was +0.81. On a percent-of-sales basis, OC’s free cash flow was 3.49% while NCS converted 3.06% of its revenues into cash flow. This means that, for a given level of sales, OC is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. OC has a current ratio of 1.70 compared to 1.70 for NCS. This means that OC can more easily cover its most immediate liabilities over the next twelve months. OC’s debt-to-equity ratio is 0.62 versus a D/E of 1.27 for NCS. NCS is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

OC trades at a forward P/E of 18.05, a P/B of 2.60, and a P/S of 1.71, compared to a forward P/E of 13.99, a P/B of 4.35, and a P/S of 0.72 for NCS. OC is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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. OC is currently priced at a 4.17% to its one-year price target of 91.67. Comparatively, NCS is -11.7% relative to its price target of 21.63. This suggests that NCS 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 1.90 for OC and 2.30 for NCS, which implies that analysts are more bullish on the outlook for NCS.

**Risk and Volatility**

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. OC has a beta of 1.02 and NCS’s beta is 1.64. OC’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. OC has a short ratio of 3.50 compared to a short interest of 1.23 for NCS. This implies that the market is currently less bearish on the outlook for NCS.

**Summary**

Owens Corning (NYSE:OC) beats NCI Building Systems, Inc. (NYSE:NCS) on a total of 8 of the 14 factors compared between the two stocks. OC is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, NEM has better sentiment signals based on short interest.