ZTO Express (Cayman) Inc. (NYSE:ZTO) shares are down more than -3.60% this year and recently increased 0.53% or $0.08 to settle at $15.28. AstraZeneca PLC (NYSE:AZN), on the other hand, is down -2.54% year to date as of 03/13/2018. It currently trades at $33.82 and has returned 0.12% during the past week.
ZTO Express (Cayman) Inc. (NYSE:ZTO) and AstraZeneca PLC (NYSE:AZN) are the two most active stocks in the market based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect ZTO to grow earnings at a 1.07% annual rate over the next 5 years. Comparatively, AZN is expected to grow at a 11.70% annual rate. All else equal, AZN’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. ZTO’s ROI is 10.10% while AZN has a ROI of 13.10%. The interpretation is that AZN’s business generates a higher return on investment than ZTO’s.
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, ZTO’s free cash flow was 0% while AZN converted 4.06% of its revenues into cash flow. This means that, for a given level of sales, AZN 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. ZTO has a current ratio of 3.30 compared to 0.80 for AZN. This means that ZTO can more easily cover its most immediate liabilities over the next twelve months. ZTO’s debt-to-equity ratio is 0.01 versus a D/E of 1.19 for AZN. AZN is therefore the more solvent of the two companies, and has lower financial risk.
ZTO trades at a forward P/E of 17.29, a P/B of 3.37, and a P/S of 6.41, compared to a forward P/E of 18.36, a P/B of 5.72, and a P/S of 3.81 for AZN. 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. ZTO is currently priced at a -21.16% to its one-year price target of 19.38. Comparatively, AZN is -13.48% relative to its price target of 39.09. This suggests that ZTO 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 2.10 for ZTO and 1.80 for AZN, which implies that analysts are more bullish on the outlook for ZTO.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. ZTO has a short ratio of 5.57 compared to a short interest of 2.21 for AZN. This implies that the market is currently less bearish on the outlook for AZN.
AstraZeneca PLC (NYSE:AZN) beats ZTO Express (Cayman) Inc. (NYSE:ZTO) on a total of 7 of the 14 factors compared between the two stocks. AZN higher liquidity, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. Finally, AZN has better sentiment signals based on short interest.