Earnings

Should You Buy Harmony Gold Mining Company Limited (HMY) or Banco Bradesco S.A. (BBD)?

Harmony Gold Mining Company Limited (NYSE:HMY) shares are up more than 17.65% this year and recently decreased -2.22% or -$0.05 to settle at $2.20. Banco Bradesco S.A. (NYSE:BBD), on the other hand, is up 16.19% year to date as of 03/13/2018. It currently trades at $11.88 and has returned -2.94% during the past week.

Harmony Gold Mining Company Limited (NYSE:HMY) and Banco Bradesco S.A. (NYSE:BBD) 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.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect HMY to grow earnings at a 0.00% annual rate over the next 5 years. Comparatively, BBD is expected to grow at a 19.80% annual rate. All else equal, BBD’s higher growth rate would imply a greater potential for capital appreciation.



Cash Flow 

Cash is king when it comes to investing. HMY’s free cash flow (“FCF”) per share for the trailing twelve months was +1.20. Comparatively, BBD’s free cash flow per share was +1.68. On a percent-of-sales basis, HMY’s free cash flow was 37.74% while BBD converted 14.37% of its revenues into cash flow. This means that, for a given level of sales, HMY is able to generate more free cash flow for investors.

Valuation




HMY trades at a forward P/E of 3.73, a P/B of 0.39, and a P/S of 0.60, compared to a forward P/E of 10.42, a P/B of 2.12, and a P/S of 3.12 for BBD. HMY 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

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”. HMY is currently priced at a -5.98% to its one-year price target of 2.34. Comparatively, BBD is -2.3% relative to its price target of 12.16. This suggests that HMY 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 3.30 for HMY and 2.60 for BBD, which implies that analysts are more bullish on the outlook for HMY.

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. HMY has a short ratio of 1.44 compared to a short interest of 0.67 for BBD. This implies that the market is currently less bearish on the outlook for BBD.

Summary

Harmony Gold Mining Company Limited (NYSE:HMY) beats Banco Bradesco S.A. (NYSE:BBD) on a total of 8 of the 14 factors compared between the two stocks. HMY generates a higher return on investment, has a higher cash conversion rate and higher liquidity. In terms of valuation, HMY is the cheaper of the two stocks on an earnings, book value and sales basis, HMY is more undervalued relative to its price target.

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