The shares of Teva Pharmaceutical Industries Limited have increased by more than 14.72% this year alone. The shares recently went up by 8.48% or $1.7 and now trades at $21.74. The shares of Office Depot, Inc. (NASDAQ:ODP), has slumped by -0.85% year to date as of 01/11/2018. The shares currently trade at $3.51 and have been able to report a change of 4.46% over the past one week.
The stock of Teva Pharmaceutical Industries Limited and Office Depot, Inc. 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: -7.27% versus 3.14%
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 TEVA will grow it’s earning at a -7.27% annual rate in the next 5 years. This is in contrast to ODP which will have a positive growth at a 3.14% annual rate. This means that the higher growth rate of ODP 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. TEVA has an EBITDA margin of 10.32%, this implies that the underlying business of TEVA is more profitable. The ROI of TEVA is 1.10% while that of ODP is 24.20%. These figures suggest that ODP ventures generate a higher ROI than that of TEVA.
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, TEVA’s free cash flow per share is a positive 11.64, while that of ODP is positive 1.78.
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 TEVA is 1.00 and that of ODP is 1.50. This implies that it is easier for TEVA to cover its immediate obligations over the next 12 months than ODP. The debt ratio of TEVA is 1.39 compared to 0.52 for ODP. TEVA can be able to settle its long-term debts and thus is a lower financial risk than ODP.
TEVA currently trades at a forward P/E of 7.27, a P/B of 0.88, and a P/S of 0.94 while ODP trades at a forward P/E of 7.77, a P/B of 0.89, and a P/S of 0.17. This means that looking at the earnings, book values and sales basis, TEVA 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 TEVA is currently at a 19.78% to its one-year price target of 18.15. Looking at its rival pricing, ODP is at a -13.12% relative to its price target of 4.04. This figure implies that over the next one year, ODP 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), TEVA is given a 3.00 while 3.00 placed for ODP. This means that analysts are equally bullish on their outlook for the two stocks 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 TEVA is 3.12 while that of ODP is just 3.70. This means that analysts are more bullish on the forecast for TEVA stock.
The stock of Office Depot, Inc. defeats that of Teva Pharmaceutical Industries Limited when the two are compared, with ODP taking 6 out of the total factors that were been considered. ODP 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, ODP is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for ODP is better on when it is viewed on short interest.