HP Inc. (NYSE:HPQ) shares are up more than 1.33% this year and recently increased 3.45% or $0.71 to settle at $21.29. Turquoise Hill Resources Ltd. (NYSE:TRQ), on the other hand, is down -14.87% year to date as of 02/14/2018. It currently trades at $2.92 and has returned 3.91% during the past week.
HP Inc. (NYSE:HPQ) and Turquoise Hill Resources Ltd. (NYSE:TRQ) 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.
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 HPQ to grow earnings at a 6.90% annual rate over the next 5 years. Comparatively, TRQ is expected to grow at a 2.00% annual rate. All else equal, HPQ’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. HP Inc. (HPQ) has an EBITDA margin of 6.97%. This suggests that HPQ underlying business is more profitable HPQ’s ROI is 62.80% while TRQ has a ROI of 1.00%. The interpretation is that HPQ’s business generates a higher return on investment than TRQ’s.
The value of a stock is simply the present value of its future free cash flows. HPQ’s free cash flow (“FCF”) per share for the trailing twelve months was +0.17. Comparatively, TRQ’s free cash flow per share was -0.08. On a percent-of-sales basis, HPQ’s free cash flow was 0.54% while TRQ converted -13.33% of its revenues into cash flow. This means that, for a given level of sales, HPQ is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. HPQ has a current ratio of 1.00 compared to 6.90 for TRQ. This means that TRQ can more easily cover its most immediate liabilities over the next twelve months.
HPQ trades at a forward P/E of 11.22, and a P/S of 0.68, compared to a forward P/E of 56.15, a P/B of 0.66, and a P/S of 6.54 for TRQ. HPQ is the cheaper of the two stocks on an earnings, book value and sales basis. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. HPQ is currently priced at a -13.21% to its one-year price target of 24.53. Comparatively, TRQ is -27% relative to its price target of 4.00. This suggests that TRQ 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 HPQ and 3.00 for TRQ, which implies that analysts are more bullish on the outlook for TRQ.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. HPQ has a beta of 1.76 and TRQ’s beta is 0.36. TRQ’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. HPQ has a short ratio of 2.54 compared to a short interest of 3.60 for TRQ. This implies that the market is currently less bearish on the outlook for HPQ.
HP Inc. (NYSE:HPQ) beats Turquoise Hill Resources Ltd. (NYSE:TRQ) on a total of 11 of the 14 factors compared between the two stocks. HPQ is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, HPQ is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, HPQ has better sentiment signals based on short interest.