DowDuPont Inc. (NYSE:DWDP) shares are up more than 0.15% this year and recently increased 0.82% or $0.58 to settle at $71.33. ConocoPhillips (NYSE:COP), on the other hand, is up 1.13% year to date as of 02/14/2018. It currently trades at $55.51 and has returned -0.22% during the past week.
DowDuPont Inc. (NYSE:DWDP) and ConocoPhillips (NYSE:COP) are the two most active stocks in the market based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect DWDP to grow earnings at a 10.18% annual rate over the next 5 years.
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 14.51% for ConocoPhillips (COP).
The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, DWDP’s free cash flow was 0% while COP converted 1.95% of its revenues into cash flow. This means that, for a given level of sales, COP is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. DWDP has a current ratio of 2.00 compared to 2.40 for COP. This means that COP can more easily cover its most immediate liabilities over the next twelve months. DWDP’s debt-to-equity ratio is 0.36 versus a D/E of 0.69 for COP. COP is therefore the more solvent of the two companies, and has lower financial risk.
DWDP trades at a forward P/E of 14.61, a P/B of 1.09, and a P/S of 2.62, compared to a forward P/E of 19.78, a P/B of 2.21, and a P/S of 2.30 for COP. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. DWDP is currently priced at a -14.66% to its one-year price target of 83.58. Comparatively, COP is -16.59% relative to its price target of 66.55. This suggests that COP 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 1.80 for DWDP and 2.00 for COP, which implies that analysts are more bullish on the outlook for COP.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. DWDP has a short ratio of 2.29 compared to a short interest of 3.88 for COP. This implies that the market is currently less bearish on the outlook for DWDP.
DowDuPont Inc. (NYSE:DWDP) beats ConocoPhillips (NYSE:COP) on a total of 8 of the 14 factors compared between the two stocks. DWDP is growing fastly, generates a higher return on investment and has lower financial risk. In terms of valuation, DWDP is the cheaper of the two stocks on an earnings and book value, Finally, DWDP has better sentiment signals based on short interest.