Gold Fields Limited (NYSE:GFI) shares are down more than -4.19% this year and recently increased 1.23% or $0.05 to settle at $4.12. ADT Inc. (NYSE:ADT), on the other hand, is down -3.63% year to date as of 02/14/2018. It currently trades at $11.94 and has returned -4.56% during the past week.
Gold Fields Limited (NYSE:GFI) and ADT Inc. (NYSE:ADT) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect GFI to grow earnings at a 9.10% annual rate over the next 5 years. Comparatively, ADT is expected to grow at a 5.20% annual rate. All else equal, GFI’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 22.71% for ADT Inc. (ADT). GFI’s ROI is 8.50% while ADT has a ROI of 0.30%. The interpretation is that GFI’s business generates a higher return on investment than ADT’s.
Cash is king when it comes to investing. GFI’s free cash flow (“FCF”) per share for the trailing twelve months was +2.28. Comparatively, ADT’s free cash flow per share was +0.84.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. GFI has a current ratio of 1.20 compared to 0.50 for ADT. This means that GFI can more easily cover its most immediate liabilities over the next twelve months. GFI’s debt-to-equity ratio is 0.56 versus a D/E of 3.87 for ADT. ADT is therefore the more solvent of the two companies, and has lower financial risk.
GFI trades at a forward P/E of 16.82, a P/B of 1.02, and a P/S of 1.26, compared to a P/B of 2.74, and a P/S of 2.05 for ADT. 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. GFI is currently priced at a -9.45% to its one-year price target of 4.55. Comparatively, ADT is -71.57% relative to its price target of 42.00. This suggests that ADT 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 3.00 for GFI and 3.00 for ADT, which implies that analysts are equally bullish on their outlook for the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. GFI has a short ratio of 0.87 compared to a short interest of 1.08 for ADT. This implies that the market is currently less bearish on the outlook for GFI.
Gold Fields Limited (NYSE:GFI) beats ADT Inc. (NYSE:ADT) on a total of 9 of the 13 factors compared between the two stocks. GFI is growing fastly, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, GFI is the cheaper of the two stocks on book value and sales basis, Finally, GFI has better sentiment signals based on short interest.