Noble Corporation plc (NYSE:NE) shares are down more than -12.61% this year and recently increased 0.77% or $0.03 to settle at $3.95. Pandora Media, Inc. (NYSE:P), on the other hand, is up 1.66% year to date as of 02/14/2018. It currently trades at $4.90 and has returned 1.03% during the past week.
Noble Corporation plc (NYSE:NE) and Pandora Media, Inc. (NYSE:P) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, P is expected to grow at a 21.55% annual rate. All else equal, P’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 Return on Investment (ROI) as measures of profitability and return. NE’s ROI is -6.30% while P has a ROI of -35.50%. The interpretation is that NE’s business generates a higher return on investment than P’s.
If there’s one thing investors care more about than earnings, it’s cash flow. NE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.10. Comparatively, P’s free cash flow per share was -0.35. On a percent-of-sales basis, NE’s free cash flow was 1.06% while P converted -6.28% of its revenues into cash flow. This means that, for a given level of sales, NE is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. NE has a current ratio of 1.60 compared to 4.20 for P. This means that P can more easily cover its most immediate liabilities over the next twelve months. NE’s debt-to-equity ratio is 0.77 versus a D/E of 1.58 for P. P is therefore the more solvent of the two companies, and has lower financial risk.
NE trades at a P/B of 0.18, and a P/S of 0.75, compared to a P/B of 7.10, and a P/S of 0.84 for P. 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. NE is currently priced at a -15.96% to its one-year price target of 4.70. Comparatively, P is -37.58% relative to its price target of 7.85. This suggests that P 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 3.10 for NE and 2.60 for P, which implies that analysts are more bullish on the outlook for NE.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. NE has a beta of 2.00 and P’s beta is -0.37. P’s shares are therefore the less volatile of 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. NE has a short ratio of 5.80 compared to a short interest of 6.32 for P. This implies that the market is currently less bearish on the outlook for NE.
Noble Corporation plc (NYSE:NE) beats Pandora Media, Inc. (NYSE:P) on a total of 7 of the 14 factors compared between the two stocks. NE 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, NE is the cheaper of the two stocks on book value and sales basis, Finally, NE has better sentiment signals based on short interest.