Pure Storage, Inc. (NYSE:PSTG) shares are up more than 31.84% this year and recently decreased -0.38% or -$0.08 to settle at $20.91. Goldcorp Inc. (NYSE:GG), on the other hand, is up 4.39% year to date as of 03/13/2018. It currently trades at $13.33 and has returned 0.98% during the past week.
Pure Storage, Inc. (NYSE:PSTG) and Goldcorp Inc. (NYSE:GG) are the two most active stocks in the market based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect PSTG to grow earnings at a 40.00% annual rate over the next 5 years. Comparatively, GG is expected to grow at a 41.17% annual rate. All else equal, GG’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. PSTG’s ROI is -51.60% while GG has a ROI of 5.90%. The interpretation is that GG’s business generates a higher return on investment than PSTG’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. PSTG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.07. Comparatively, GG’s free cash flow per share was -0.28. On a percent-of-sales basis, PSTG’s free cash flow was 0% while GG converted -7.09% of its revenues into cash flow. This means that, for a given level of sales, PSTG is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. PSTG has a current ratio of 2.60 compared to 0.90 for GG. This means that PSTG can more easily cover its most immediate liabilities over the next twelve months. PSTG’s debt-to-equity ratio is 0.00 versus a D/E of 0.20 for GG. GG is therefore the more solvent of the two companies, and has lower financial risk.
PSTG trades at a forward P/E of 51.12, a P/B of 9.73, and a P/S of 4.36, compared to a forward P/E of 17.80, a P/B of 0.82, and a P/S of 3.38 for GG. PSTG is the expensive 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
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. PSTG is currently priced at a -10.83% to its one-year price target of 23.45. Comparatively, GG is -24.9% relative to its price target of 17.75. This suggests that GG 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 PSTG and 2.20 for GG, which implies that analysts are more bullish on the outlook for GG.
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. PSTG has a short ratio of 4.92 compared to a short interest of 1.07 for GG. This implies that the market is currently less bearish on the outlook for GG.
Goldcorp Inc. (NYSE:GG) beats Pure Storage, Inc. (NYSE:PSTG) on a total of 7 of the 14 factors compared between the two stocks. GG has higher cash flow per share and generates a higher return on investment. In terms of valuation, GG is the cheaper of the two stocks on an earnings, book value and sales basis, GG is more undervalued relative to its price target. Finally, GG has better sentiment signals based on short interest.