Cypress Semiconductor Corporation (NASDAQ:CY) shares are up more than 19.29% this year and recently increased 1.17% or $0.21 to settle at $18.18. Mylan N.V. (NASDAQ:MYL), on the other hand, is down -4.49% year to date as of 03/20/2018. It currently trades at $40.41 and has returned -4.58% during the past week.
Cypress Semiconductor Corporation (NASDAQ:CY) and Mylan N.V. (NASDAQ:MYL) are the two most active stocks in the market based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
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 CY to grow earnings at a 23.80% annual rate over the next 5 years. Comparatively, MYL is expected to grow at a 6.90% annual rate. All else equal, CY’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 EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 35.28% for Mylan N.V. (MYL). CY’s ROI is 1.10% while MYL has a ROI of 4.70%. The interpretation is that MYL’s business generates a higher return on investment than CY’s.
The value of a stock is simply the present value of its future free cash flows. CY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.46. Comparatively, MYL’s free cash flow per share was +0.70. On a percent-of-sales basis, CY’s free cash flow was 7.01% while MYL converted 3.03% of its revenues into cash flow. This means that, for a given level of sales, CY 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. CY has a current ratio of 1.20 compared to 1.10 for MYL. This means that CY can more easily cover its most immediate liabilities over the next twelve months. CY’s debt-to-equity ratio is 0.54 versus a D/E of 1.11 for MYL. MYL is therefore the more solvent of the two companies, and has lower financial risk.
CY trades at a forward P/E of 12.82, a P/B of 3.45, and a P/S of 2.74, compared to a forward P/E of 6.89, a P/B of 1.62, and a P/S of 1.74 for MYL. CY 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. CY is currently priced at a -9.78% to its one-year price target of 20.15. Comparatively, MYL is -19.02% relative to its price target of 49.90. This suggests that MYL 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 2.40 for CY and 2.10 for MYL, which implies that analysts are more bullish on the outlook for CY.
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. CY has a beta of 2.09 and MYL’s beta is 1.39. MYL’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. CY has a short ratio of 3.52 compared to a short interest of 3.56 for MYL. This implies that the market is currently less bearish on the outlook for CY.
Mylan N.V. (NASDAQ:MYL) beats Cypress Semiconductor Corporation (NASDAQ:CY) on a total of 9 of the 14 factors compared between the two stocks. MYL is growing fastly, generates a higher return on investment and has higher cash flow per share. In terms of valuation, MYL is the cheaper of the two stocks on an earnings, book value and sales basis, MYL is more undervalued relative to its price target. Finally, CRZO has better sentiment signals based on short interest.