Xilinx, Inc. (NASDAQ:XLNX) shares are up more than 12.93% this year and recently decreased -1.21% or -$0.93 to settle at $76.14. Pitney Bowes Inc. (NYSE:PBI), on the other hand, is up 13.33% year to date as of 03/13/2018. It currently trades at $12.67 and has returned -2.84% during the past week.
Xilinx, Inc. (NASDAQ:XLNX) and Pitney Bowes Inc. (NYSE:PBI) are the two most active stocks in the market based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect XLNX to grow earnings at a 9.47% annual rate over the next 5 years. Comparatively, PBI is expected to grow at a 4.00% annual rate. All else equal, XLNX’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 16.31% for Pitney Bowes Inc. (PBI). XLNX’s ROI is 15.90% while PBI has a ROI of 8.30%. The interpretation is that XLNX’s business generates a higher return on investment than PBI’s.
If there’s one thing investors care more about than earnings, it’s cash flow. XLNX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.34. Comparatively, PBI’s free cash flow per share was -. On a percent-of-sales basis, XLNX’s free cash flow was 3.69% while PBI converted 0% of its revenues into cash flow. This means that, for a given level of sales, XLNX is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. XLNX has a current ratio of 9.10 compared to 1.30 for PBI. This means that XLNX can more easily cover its most immediate liabilities over the next twelve months. XLNX’s debt-to-equity ratio is 0.73 versus a D/E of 20.36 for PBI. PBI is therefore the more solvent of the two companies, and has lower financial risk.
XLNX trades at a forward P/E of 26.49, a P/B of 8.18, and a P/S of 7.78, compared to a forward P/E of 7.89, a P/B of 12.54, and a P/S of 0.67 for PBI. XLNX is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. XLNX is currently priced at a -0.14% to its one-year price target of 76.25. Comparatively, PBI is -16.64% relative to its price target of 15.20. This suggests that PBI 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 2.70 for XLNX and 2.20 for PBI, which implies that analysts are more bullish on the outlook for XLNX.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. XLNX has a beta of 1.11 and PBI’s beta is 1.09. PBI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. XLNX has a short ratio of 1.94 compared to a short interest of 1.90 for PBI. This implies that the market is currently less bearish on the outlook for PBI.
Xilinx, Inc. (NASDAQ:XLNX) beats Pitney Bowes Inc. (NYSE:PBI) on a total of 8 of the 14 factors compared between the two stocks. XLNX is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, EXPR has better sentiment signals based on short interest.