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Which of 2 stocks would appeal to long-term investors? Mitel Networks Corporation (MITL), The KEYW Holding Corporation (KEYW)

The shares of Mitel Networks Corporation have increased by more than 6.32% this year alone. The shares recently went up by 5.55% or $0.46 and now trades at $8.75. The shares of The KEYW Holding Corporation (NASDAQ:KEYW), has jumped by 26.24% year to date as of 02/14/2018. The shares currently trade at $7.41 and have been able to report a change of 14.35% over the past one week.

The stock of Mitel Networks Corporation and The KEYW Holding Corporation were two of the most active stocks on Wednesday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 26.50% versus 25.00%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that MITL will grow it’s earning at a 26.50% annual rate in the next 5 years. This is in contrast to KEYW which will have a positive growth at a 25.00% annual rate. This means that the higher growth rate of MITL implies a greater potential for capital appreciation over the years.



Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. MITL has an EBITDA margin of 15.49%, this implies that the underlying business of MITL is more profitable. The ROI of MITL is 5.10% while that of KEYW is 3.10%. These figures suggest that MITL ventures generate a higher ROI than that of KEYW.

Cash Flow 




The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, MITL’s free cash flow per share is a positive 0.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for MITL is 1.00 and that of KEYW is 1.50. This implies that it is easier for MITL to cover its immediate obligations over the next 12 months than KEYW. The debt ratio of MITL is 1.99 compared to 0.90 for KEYW. MITL can be able to settle its long-term debts and thus is a lower financial risk than KEYW.

Valuation

MITL currently trades at a forward P/E of 9.34, a P/B of 3.26, and a P/S of 1.26 while KEYW trades at a forward P/E of 64.43, a P/B of 1.25, and a P/S of 0.92. This means that looking at the earnings, book values and sales basis, MITL is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of MITL is currently at a -24.37% to its one-year price target of 11.57. Looking at its rival pricing, KEYW is at a -18.93% relative to its price target of 9.14. This figure implies that over the next one year, KEYW is a better investment.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), MITL is given a 2.00 while 2.40 placed for KEYW. This means that analysts are more bullish on the outlook for KEYW stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for MITL is 0.67 while that of KEYW is just 18.07. This means that analysts are more bullish on the forecast for MITL stock.

Conclusion

The stock of The KEYW Holding Corporation defeats that of Mitel Networks Corporation when the two are compared, with KEYW taking 5 out of the total factors that were been considered. KEYW happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, KEYW is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for KEYW is better on when it is viewed on short interest.

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