Delek US Holdings, Inc. (NYSE:DK) shares are up more than 4.69% this year and recently decreased -1.88% or -$0.7 to settle at $36.58. Platform Specialty Products Corporation (NYSE:PAH), on the other hand, is up 8.47% year to date as of 03/13/2018. It currently trades at $10.76 and has returned -3.67% during the past week.
Delek US Holdings, Inc. (NYSE:DK) and Platform Specialty Products Corporation (NYSE:PAH) 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, PAH is expected to grow at a 14.45% annual rate. All else equal, PAH’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. EBITDA margin of 10.77% for Platform Specialty Products Corporation (PAH). DK’s ROI is 1.60% while PAH has a ROI of 2.00%. The interpretation is that PAH’s business generates a higher return on investment than DK’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. DK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.42. Comparatively, PAH’s free cash flow per share was +0.29. On a percent-of-sales basis, DK’s free cash flow was 0.49% while PAH converted 2.21% of its revenues into cash flow. This means that, for a given level of sales, PAH 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. DK has a current ratio of 1.00 compared to 2.10 for PAH. This means that PAH can more easily cover its most immediate liabilities over the next twelve months. DK’s debt-to-equity ratio is 0.89 versus a D/E of 2.00 for PAH. PAH is therefore the more solvent of the two companies, and has lower financial risk.
DK trades at a forward P/E of 12.86, a P/B of 1.80, and a P/S of 0.41, compared to a forward P/E of 9.41, a P/B of 1.13, and a P/S of 0.80 for PAH. DK is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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”. DK is currently priced at a -15.38% to its one-year price target of 43.23. Comparatively, PAH is -24.23% relative to its price target of 14.20. This suggests that PAH 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 1.70 for DK and 2.20 for PAH, which implies that analysts are more bullish on the outlook for PAH.
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. DK has a beta of 1.61 and PAH’s beta is 3.04. DK’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. DK has a short ratio of 5.29 compared to a short interest of 4.84 for PAH. This implies that the market is currently less bearish on the outlook for PAH.
Platform Specialty Products Corporation (NYSE:PAH) beats Delek US Holdings, Inc. (NYSE:DK) on a total of 9 of the 14 factors compared between the two stocks. PAH has higher cash flow per share, is more profitable, generates a higher return on investment, has a higher cash conversion rate and higher liquidity. In terms of valuation, PAH is the cheaper of the two stocks on an earnings and book value, PAH is more undervalued relative to its price target. Finally, PAH has better sentiment signals based on short interest.