The shares of China Information Technology, Inc. have increased by more than 102.70% this year alone. The shares recently went up by 16.28% or $0.42 and now trades at $3.00. The shares of American Equity Investment Life Holding Company (NYSE:AEL), has jumped by 11.85% year to date as of 01/11/2018. The shares currently trade at $34.37 and have been able to report a change of 8.87% over the past one week.
The stock of China Information Technology, Inc. and American Equity Investment Life Holding Company 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: 23.00% versus 10.00%
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 CNIT will grow it’s earning at a 23.00% annual rate in the next 5 years. This is in contrast to AEL which will have a positive growth at a 10.00% annual rate. This means that the higher growth rate of CNIT 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. The ROI of CNIT is -127.30% while that of AEL is 22.10%. These figures suggest that AEL ventures generate a higher ROI than that of CNIT.
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, CNIT’s free cash flow per share is a positive 0, while that of AEL is positive 19.19.
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 debt ratio of CNIT is 1.44 compared to 0.27 for AEL. CNIT can be able to settle its long-term debts and thus is a lower financial risk than AEL.
CNIT currently trades at a P/B of 23.26, and a P/S of 7.27 while AEL trades at a forward P/E of 11.56, a P/B of 1.11, and a P/S of 0.92. This means that looking at the earnings, book values and sales basis, AEL 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 CNIT is currently at a -66.67% to its one-year price target of 9.00. Looking at its rival pricing, AEL is at a 4.79% relative to its price target of 32.80. This figure implies that over the next one year, AEL is a better investment.
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 CNIT is 0.16 while that of AEL is just 3.20. This means that analysts are more bullish on the forecast for CNIT stock.
The stock of China Information Technology, Inc. defeats that of American Equity Investment Life Holding Company when the two are compared, with CNIT taking 7 out of the total factors that were been considered. CNIT 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, CNIT is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for CNIT is better on when it is viewed on short interest.