America Movil, S.A.B. de C.V. (NYSE:AMX) shares are up more than 12.83% this year and recently increased 1.04% or $0.2 to settle at $19.35. Abercrombie & Fitch Co. (NYSE:ANF), on the other hand, is up 27.08% year to date as of 03/13/2018. It currently trades at $22.15 and has returned 3.75% during the past week.
America Movil, S.A.B. de C.V. (NYSE:AMX) and Abercrombie & Fitch Co. (NYSE:ANF) 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. Comparatively, ANF is expected to grow at a 12.57% annual rate. All else equal, ANF’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 6.03% for Abercrombie & Fitch Co. (ANF). AMX’s ROI is 10.70% while ANF has a ROI of 1.80%. The interpretation is that AMX’s business generates a higher return on investment than ANF’s.
Cash is king when it comes to investing. On a percent-of-sales basis, AMX’s free cash flow was 0% while ANF converted 1.13% of its revenues into cash flow. This means that, for a given level of sales, ANF is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. AMX has a current ratio of 0.80 compared to 2.10 for ANF. This means that ANF can more easily cover its most immediate liabilities over the next twelve months. AMX’s debt-to-equity ratio is 3.52 versus a D/E of 0.00 for ANF. AMX is therefore the more solvent of the two companies, and has lower financial risk.
AMX trades at a forward P/E of 15.74, a P/B of 6.39, and a P/S of 1.15, compared to a forward P/E of 25.11, a P/B of 1.31, and a P/S of 0.43 for ANF. AMX is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. AMX is currently priced at a 1.95% to its one-year price target of 18.98. Comparatively, ANF is 2.45% relative to its price target of 21.62. This suggests that AMX 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 2.60 for AMX and 3.00 for ANF, which implies that analysts are more bullish on the outlook for ANF.
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. AMX has a beta of 0.54 and ANF’s beta is 1.05. AMX’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. AMX has a short ratio of 4.98 compared to a short interest of 5.27 for ANF. This implies that the market is currently less bearish on the outlook for AMX.
Abercrombie & Fitch Co. (NYSE:ANF) beats America Movil, S.A.B. de C.V. (NYSE:AMX) on a total of 8 of the 14 factors compared between the two stocks. ANF generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, ANF is the cheaper of the two stocks on book value and sales basis, Finally, ADM has better sentiment signals based on short interest.