Micron Technology, Inc. (NASDAQ:MU) shares are up more than 5.67% this year and recently increased 1.92% or $0.82 to settle at $43.45. NIKE, Inc. (NYSE:NKE), on the other hand, is up 8.65% year to date as of 02/14/2018. It currently trades at $67.96 and has returned 3.55% during the past week.
Micron Technology, Inc. (NASDAQ:MU) and NIKE, Inc. (NYSE:NKE) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
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 MU to grow earnings at a 27.27% annual rate over the next 5 years. Comparatively, NKE is expected to grow at a 7.55% annual rate. All else equal, MU’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 15.07% for NIKE, Inc. (NKE). MU’s ROI is 19.20% while NKE has a ROI of 25.30%. The interpretation is that NKE’s business generates a higher return on investment than MU’s.
If there’s one thing investors care more about than earnings, it’s cash flow. MU’s free cash flow (“FCF”) per share for the trailing twelve months was +1.37. Comparatively, NKE’s free cash flow per share was +0.48. On a percent-of-sales basis, MU’s free cash flow was 7.8% while NKE converted 2.27% of its revenues into cash flow. This means that, for a given level of sales, MU 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. MU has a current ratio of 2.40 compared to 2.50 for NKE. This means that NKE can more easily cover its most immediate liabilities over the next twelve months. MU’s debt-to-equity ratio is 0.40 versus a D/E of 0.40 for NKE. MU is therefore the more solvent of the two companies, and has lower financial risk.
MU trades at a forward P/E of 4.99, a P/B of 2.19, and a P/S of 2.15, compared to a forward P/E of 25.41, a P/B of 9.40, and a P/S of 3.05 for NKE. MU 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. MU is currently priced at a -26.8% to its one-year price target of 59.36. Comparatively, NKE is 1.13% relative to its price target of 67.20. This suggests that MU 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 MU and 2.30 for NKE, which implies that analysts are more bullish on the outlook for NKE.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. MU has a beta of 1.55 and NKE’s beta is 0.74. NKE’s shares are therefore the less volatile of the two stocks.
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. MU has a short ratio of 1.40 compared to a short interest of 2.79 for NKE. This implies that the market is currently less bearish on the outlook for MU.
Micron Technology, Inc. (NASDAQ:MU) beats NIKE, Inc. (NYSE:NKE) on a total of 10 of the 14 factors compared between the two stocks. MU is growing fastly, is more profitable, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, MU is the cheaper of the two stocks on an earnings, book value and sales basis, MU is more undervalued relative to its price target. Finally, MU has better sentiment signals based on short interest.