United Parcel Service, Inc. (NYSE:UPS) shares are down more than -10.53% this year and recently decreased -0.89% or -$0.96 to settle at $106.60. The Blackstone Group L.P. (NYSE:BX), on the other hand, is up 5.50% year to date as of 02/14/2018. It currently trades at $33.78 and has returned -3.35% during the past week.
United Parcel Service, Inc. (NYSE:UPS) and The Blackstone Group L.P. (NYSE:BX) 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect UPS to grow earnings at a 10.82% annual rate over the next 5 years. Comparatively, BX is expected to grow at a 9.67% annual rate. All else equal, UPS’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., compared to an EBITDA margin of 55.67% for The Blackstone Group L.P. (BX). UPS’s ROI is 22.80% while BX has a ROI of 13.40%. The interpretation is that UPS’s business generates a higher return on investment than BX’s.
Cash is king when it comes to investing. UPS’s free cash flow (“FCF”) per share for the trailing twelve months was -5.08. Comparatively, BX’s free cash flow per share was -. On a percent-of-sales basis, UPS’s free cash flow was -6.62% while BX converted 0% of its revenues into cash flow. This means that, for a given level of sales, BX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
UPS’s debt-to-equity ratio is 12.53 versus a D/E of 1.92 for BX. UPS is therefore the more solvent of the two companies, and has lower financial risk.
UPS trades at a forward P/E of 13.57, a P/B of 61.26, and a P/S of 1.43, compared to a forward P/E of 10.29, a P/B of 3.42, and a P/S of 5.86 for BX. UPS is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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. UPS is currently priced at a -16.04% to its one-year price target of 126.96. Comparatively, BX is -18.52% relative to its price target of 41.46. This suggests that BX 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 2.70 for UPS and 1.60 for BX, which implies that analysts are more bullish on the outlook for UPS.
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. UPS has a beta of 1.01 and BX’s beta is 1.19. UPS’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. UPS has a short ratio of 2.60 compared to a short interest of 1.74 for BX. This implies that the market is currently less bearish on the outlook for BX.
The Blackstone Group L.P. (NYSE:BX) beats United Parcel Service, Inc. (NYSE:UPS) on a total of 9 of the 14 factors compared between the two stocks. BX is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, BX is the cheaper of the two stocks on an earnings and book value, BX is more undervalued relative to its price target. Finally, BX has better sentiment signals based on short interest.