Earnings

Critical Comparison: Nokia Corporation (NOK) vs. Amgen Inc. (AMGN)

Nokia Corporation (NYSE:NOK) shares are up more than 21.24% this year and recently increased 2.54% or $0.14 to settle at $5.65. Amgen Inc. (NASDAQ:AMGN), on the other hand, is up 3.23% year to date as of 02/14/2018. It currently trades at $179.52 and has returned 1.16% during the past week.

Nokia Corporation (NYSE:NOK) and Amgen Inc. (NASDAQ:AMGN) are the two most active stocks in the market based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect NOK to grow earnings at a 17.38% annual rate over the next 5 years. Comparatively, AMGN is expected to grow at a 4.13% annual rate. All else equal, NOK’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 44.87% for Amgen Inc. (AMGN). NOK’s ROI is -2.70% while AMGN has a ROI of 13.00%. The interpretation is that AMGN’s business generates a higher return on investment than NOK’s.

Cash Flow 




Cash is king when it comes to investing. NOK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.33. Comparatively, AMGN’s free cash flow per share was -. On a percent-of-sales basis, NOK’s free cash flow was 7.1% while AMGN converted 0% of its revenues into cash flow. This means that, for a given level of sales, NOK is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. NOK has a current ratio of 1.60 compared to 6.10 for AMGN. This means that AMGN can more easily cover its most immediate liabilities over the next twelve months. NOK’s debt-to-equity ratio is 0.23 versus a D/E of 1.11 for AMGN. AMGN is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NOK trades at a forward P/E of 14.60, a P/B of 1.57, and a P/S of 1.17, compared to a forward P/E of 12.80, a P/B of 4.06, and a P/S of 5.72 for AMGN. 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. NOK is currently priced at a -14% to its one-year price target of 6.57. Comparatively, AMGN is -7.77% relative to its price target of 194.64. This suggests that NOK 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 2.60 for NOK and 2.40 for AMGN, which implies that analysts are more bullish on the outlook for NOK.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. NOK has a beta of 0.91 and AMGN’s beta is 1.33. NOK’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. NOK has a short ratio of 2.02 compared to a short interest of 3.11 for AMGN. This implies that the market is currently less bearish on the outlook for NOK.

Summary

Nokia Corporation (NYSE:NOK) beats Amgen Inc. (NASDAQ:AMGN) on a total of 9 of the 14 factors compared between the two stocks. NOK is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, NOK is the cheaper of the two stocks on book value and sales basis, NOK is more undervalued relative to its price target. Finally, NOK has better sentiment signals based on short interest.

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