Altaba Inc. (NASDAQ:AABA) shares are up more than 8.76% this year and recently decreased -2.05% or -$1.59 to settle at $75.97. Boston Scientific Corporation (NYSE:BSX), on the other hand, is up 14.68% year to date as of 03/13/2018. It currently trades at $28.43 and has returned 3.72% during the past week.
Altaba Inc. (NASDAQ:AABA) and Boston Scientific Corporation (NYSE:BSX) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect AABA to grow earnings at a -4.33% annual rate over the next 5 years. Comparatively, BSX is expected to grow at a 10.18% annual rate. All else equal, BSX’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 22.17% for Boston Scientific Corporation (BSX). AABA’s ROI is 8.60% while BSX has a ROI of 10.40%. The interpretation is that BSX’s business generates a higher return on investment than AABA’s.
The value of a stock is simply the present value of its future free cash flows. AABA’s free cash flow (“FCF”) per share for the trailing twelve months was +0.16. Comparatively, BSX’s free cash flow per share was -. On a percent-of-sales basis, AABA’s free cash flow was 2.7% while BSX converted 0% of its revenues into cash flow. This means that, for a given level of sales, AABA is able to generate more free cash flow for investors.
Liquidity and Financial Risk
AABA’s debt-to-equity ratio is 0.02 versus a D/E of 0.80 for BSX. BSX is therefore the more solvent of the two companies, and has lower financial risk.
AABA trades at a forward P/E of 148.96, a P/B of 0.92, and a P/S of 1203.30, compared to a forward P/E of 18.40, a P/B of 5.56, and a P/S of 4.31 for BSX. AABA is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S 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. AABA is currently priced at a -22.48% to its one-year price target of 98.00. Comparatively, BSX is -9.75% relative to its price target of 31.50. This suggests that AABA 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 2.00 for AABA and 1.70 for BSX, which implies that analysts are more bullish on the outlook for AABA.
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. AABA has a beta of 1.98 and BSX’s beta is 0.82. BSX’s shares are therefore the less volatile of the two stocks.
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. AABA has a short ratio of 2.80 compared to a short interest of 1.77 for BSX. This implies that the market is currently less bearish on the outlook for BSX.
Boston Scientific Corporation (NYSE:BSX) beats Altaba Inc. (NASDAQ:AABA) on a total of 9 of the 14 factors compared between the two stocks. BSX has higher cash flow per share, is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, BSX is the cheaper of the two stocks on an earnings and sales basis, Finally, BSX has better sentiment signals based on short interest.