McDermott International, Inc. (NYSE:MDR) shares are up more than 16.41% this year and recently decreased -0.78% or -$0.06 to settle at $7.66. Express, Inc. (NYSE:EXPR), on the other hand, is down -27.09% year to date as of 03/13/2018. It currently trades at $7.40 and has returned -2.63% during the past week.
McDermott International, Inc. (NYSE:MDR) and Express, Inc. (NYSE:EXPR) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect MDR to grow earnings at a -7.24% annual rate over the next 5 years. Comparatively, EXPR is expected to grow at a 12.00% annual rate. All else equal, EXPR’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. , compared to an EBITDA margin of 5.46% for Express, Inc. (EXPR). MDR’s ROI is 14.90% while EXPR has a ROI of 11.10%. The interpretation is that MDR’s business generates a higher return on investment than EXPR’s.
If there’s one thing investors care more about than earnings, it’s cash flow. MDR’s free cash flow (“FCF”) per share for the trailing twelve months was +0.10. Comparatively, EXPR’s free cash flow per share was +0.32. On a percent-of-sales basis, MDR’s free cash flow was 0.95% while EXPR converted 1.15% of its revenues into cash flow. This means that, for a given level of sales, EXPR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. MDR has a current ratio of 2.00 compared to 1.70 for EXPR. This means that MDR can more easily cover its most immediate liabilities over the next twelve months. MDR’s debt-to-equity ratio is 0.30 versus a D/E of 0.00 for EXPR. MDR is therefore the more solvent of the two companies, and has lower financial risk.
MDR trades at a forward P/E of 13.32, a P/B of 1.24, and a P/S of 0.73, compared to a forward P/E of 14.60, a P/B of 0.91, and a P/S of 0.27 for EXPR. MDR 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”. MDR is currently priced at a -22.23% to its one-year price target of 9.85. Comparatively, EXPR is -24.72% relative to its price target of 9.83. This suggests that EXPR 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 2.30 for MDR and 3.00 for EXPR, which implies that analysts are more bullish on the outlook for EXPR.
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. MDR has a beta of 1.78 and EXPR’s beta is 0.95. EXPR’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. MDR has a short ratio of 8.89 compared to a short interest of 4.91 for EXPR. This implies that the market is currently less bearish on the outlook for EXPR.
Express, Inc. (NYSE:EXPR) beats McDermott International, Inc. (NYSE:MDR) on a total of 9 of the 14 factors compared between the two stocks. EXPR is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, EXPR is the cheaper of the two stocks on book value and sales basis, EXPR is more undervalued relative to its price target. Finally, EXPR has better sentiment signals based on short interest.