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Financial Metrics You Should Care About: Blue Buffalo Pet Products, Inc. (BUFF), Randgold Resources Limited (GOLD)

The shares of Blue Buffalo Pet Products, Inc. have increased by more than 6.68% this year alone. The shares recently went up by 5.84% or $1.93 and now trades at $34.98. The shares of Randgold Resources Limited (NASDAQ:GOLD), has slumped by -8.88% year to date as of 02/14/2018. The shares currently trade at $90.11 and have been able to report a change of 5.53% over the past one week.

The stock of Blue Buffalo Pet Products, Inc. and Randgold Resources Limited were two of the most active stocks on Wednesday. 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: 16.40% versus 2.20%

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 BUFF will grow it’s earning at a 16.40% annual rate in the next 5 years. This is in contrast to GOLD which will have a positive growth at a 2.20% annual rate. This means that the higher growth rate of BUFF 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. BUFF has an EBITDA margin of 22.74%, this implies that the underlying business of BUFF is more profitable. The ROI of BUFF is 27.30% while that of GOLD is 8.00%. These figures suggest that BUFF ventures generate a higher ROI than that of GOLD.

Cash Flow 




The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, BUFF’s free cash flow per share is a positive 1.7, while that of GOLD is positive 6.39.

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 BUFF is 4.20 and that of GOLD is 5.90. This implies that it is easier for BUFF to cover its immediate obligations over the next 12 months than GOLD. The debt ratio of BUFF is 1.62 compared to 0.00 for GOLD. BUFF can be able to settle its long-term debts and thus is a lower financial risk than GOLD.

Valuation

BUFF currently trades at a forward P/E of 32.42, a P/B of 28.21, and a P/S of 5.52 while GOLD trades at a forward P/E of 25.56, a P/B of 2.34, and a P/S of 6.58. This means that looking at the earnings, book values and sales basis, BUFF 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 BUFF is currently at a -0.06% to its one-year price target of 35.00. Looking at its rival pricing, GOLD is at a -14.74% relative to its price target of 105.69. This figure implies that over the next one year, GOLD 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), BUFF is given a 2.20 while 2.20 placed for GOLD. 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 BUFF is 10.04 while that of GOLD is just 2.67. This means that analysts are more bullish on the forecast for GOLD stock.

Conclusion

The stock of Blue Buffalo Pet Products, Inc. defeats that of Randgold Resources Limited when the two are compared, with BUFF taking 5 out of the total factors that were been considered. BUFF 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, BUFF is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for BUFF is better on when it is viewed on short interest.

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