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Which Market Offer More Value? – Teradata Corporation (TDC), Aspen Insurance Holdings Limited (AHL)

The shares of Teradata Corporation have increased by more than 8.29% this year alone. The shares recently went up by 6.30% or $2.47 and now trades at $41.65. The shares of Aspen Insurance Holdings Limited (NYSE:AHL), has slumped by -6.53% year to date as of 03/05/2018. The shares currently trade at $37.95 and have been able to report a change of 4.40% over the past one week.

The stock of Teradata Corporation and Aspen Insurance Holdings Limited were two of the most active stocks on Monday. 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: 7.98% versus 16.71%

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 TDC will grow it’s earning at a 7.98% annual rate in the next 5 years. This is in contrast to AHL which will have a positive growth at a 16.71% annual rate. This means that the higher growth rate of AHL 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. TDC has an EBITDA margin of 9.79%, this implies that the underlying business of TDC is more profitable. The ROI of TDC is 4.50% while that of AHL is -6.20%. These figures suggest that TDC ventures generate a higher ROI than that of AHL.

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, TDC’s free cash flow per share is a positive 0.17.

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 debt ratio of TDC is 1.16 compared to 0.20 for AHL. TDC can be able to settle its long-term debts and thus is a lower financial risk than AHL.

Valuation

TDC currently trades at a forward P/E of 24.30, a P/B of 7.56, and a P/S of 2.34 while AHL trades at a forward P/E of 9.54, a P/B of 0.77, and a P/S of 0.85. This means that looking at the earnings, book values and sales basis, AHL 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 TDC is currently at a 13.3% to its one-year price target of 36.76. Looking at its rival pricing, AHL is at a -9.64% relative to its price target of 42.00. This figure implies that over the next one year, AHL 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), TDC is given a 3.20 while 2.60 placed for AHL. This means that analysts are more bullish on the outlook for TDC 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 TDC is 11.16 while that of AHL is just 1.48. This means that analysts are more bullish on the forecast for AHL stock.

Conclusion

The stock of Teradata Corporation defeats that of Aspen Insurance Holdings Limited when the two are compared, with TDC taking 5 out of the total factors that were been considered. TDC 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, TDC is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for TDC is better on when it is viewed on short interest.

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