The Walt Disney Company (NYSE:DIS) shares are down more than -2.71% this year and recently increased 0.46% or $0.48 to settle at $104.60. Ball Corporation (NYSE:BLL), on the other hand, is up 0.71% year to date as of 02/14/2018. It currently trades at $38.12 and has returned -3.08% during the past week.
The Walt Disney Company (NYSE:DIS) and Ball Corporation (NYSE:BLL) are the two most active stocks in the market 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.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect DIS to grow earnings at a 10.07% annual rate over the next 5 years. Comparatively, BLL is expected to grow at a 10.23% annual rate. All else equal, BLL’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. , compared to an EBITDA margin of 8.42% for Ball Corporation (BLL). DIS’s ROI is 14.20% while BLL has a ROI of 5.40%. The interpretation is that DIS’s business generates a higher return on investment than BLL’s.
If there’s one thing investors care more about than earnings, it’s cash flow. DIS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.83. Comparatively, BLL’s free cash flow per share was +1.52. On a percent-of-sales basis, DIS’s free cash flow was 2.26% while BLL converted 4.85% of its revenues into cash flow. This means that, for a given level of sales, BLL 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. DIS has a current ratio of 0.90 compared to 1.00 for BLL. This means that BLL can more easily cover its most immediate liabilities over the next twelve months. DIS’s debt-to-equity ratio is 0.60 versus a D/E of 2.14 for BLL. BLL is therefore the more solvent of the two companies, and has lower financial risk.
DIS trades at a forward P/E of 13.91, a P/B of 3.65, and a P/S of 2.79, compared to a forward P/E of 13.86, a P/B of 3.79, and a P/S of 1.23 for BLL. DIS 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 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. DIS is currently priced at a -12.59% to its one-year price target of 119.67. Comparatively, BLL is -16% relative to its price target of 45.38. This suggests that BLL 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 2.30 for DIS and 2.00 for BLL, which implies that analysts are more bullish on the outlook for DIS.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. DIS has a beta of 1.23 and BLL’s beta is 0.81. BLL’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.DIS has a short ratio of 2.70 compared to a short interest of 5.49 for BLL. This implies that the market is currently less bearish on the outlook for DIS.
Ball Corporation (NYSE:BLL) beats The Walt Disney Company (NYSE:DIS) on a total of 9 of the 14 factors compared between the two stocks. BLL is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, BLL is the cheaper of the two stocks on an earnings and sales basis, BLL is more undervalued relative to its price target. Finally, FOXA has better sentiment signals based on short interest.