Archer-Daniels-Midland Company (NYSE:ADM) shares are up more than 10.38% this year and recently decreased -0.65% or -$0.29 to settle at $44.24. BlackBerry Limited (NYSE:BB), on the other hand, is up 12.89% year to date as of 03/13/2018. It currently trades at $12.61 and has returned 1.37% during the past week.
Archer-Daniels-Midland Company (NYSE:ADM) and BlackBerry Limited (NYSE:BB) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect ADM to grow earnings at a -8.80% annual rate over the next 5 years. Comparatively, BB is expected to grow at a -9.88% annual rate. All else equal, ADM’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 EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Archer-Daniels-Midland Company (ADM) has an EBITDA margin of 4.71%. This suggests that ADM underlying business is more profitable ADM’s ROI is 3.60% while BB has a ROI of -44.50%. The interpretation is that ADM’s business generates a higher return on investment than BB’s.
Cash is king when it comes to investing. ADM’s free cash flow (“FCF”) per share for the trailing twelve months was -0.85. Comparatively, BB’s free cash flow per share was -0.05. On a percent-of-sales basis, ADM’s free cash flow was -0.78% while BB converted -2.05% of its revenues into cash flow. This means that, for a given level of sales, ADM is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. ADM has a current ratio of 1.60 compared to 4.30 for BB. This means that BB can more easily cover its most immediate liabilities over the next twelve months. ADM’s debt-to-equity ratio is 0.41 versus a D/E of 0.00 for BB. ADM is therefore the more solvent of the two companies, and has lower financial risk.
ADM trades at a forward P/E of 14.39, a P/B of 1.36, and a P/S of 0.41, compared to a forward P/E of 150.12, a P/B of 2.69, and a P/S of 6.88 for BB. ADM is the cheaper of the two stocks on an earnings, book value and sales basis. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. ADM is currently priced at a 3.85% to its one-year price target of 42.60. Comparatively, BB is 10.03% relative to its price target of 11.46. This suggests that ADM 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 ADM and 2.90 for BB, which implies that analysts are more bullish on the outlook for BB.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. ADM has a beta of 1.08 and BB’s beta is 1.10. ADM’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. ADM has a short ratio of 3.26 compared to a short interest of 6.14 for BB. This implies that the market is currently less bearish on the outlook for ADM.
Archer-Daniels-Midland Company (NYSE:ADM) beats BlackBerry Limited (NYSE:BB) on a total of 11 of the 14 factors compared between the two stocks. ADM is growing fastly, is more profitable, generates a higher return on investment and has a higher cash conversion rate. In terms of valuation, ADM is the cheaper of the two stocks on an earnings, book value and sales basis, ADM is more undervalued relative to its price target. Finally, ADM has better sentiment signals based on short interest.