Newmont Mining Corporation (NYSE:NEM) shares are up more than 2.32% this year and recently decreased -1.64% or -$0.64 to settle at $38.39. Viavi Solutions Inc. (NASDAQ:VIAV), on the other hand, is up 8.47% year to date as of 03/28/2018. It currently trades at $9.48 and has returned -6.14% during the past week.
Newmont Mining Corporation (NYSE:NEM) and Viavi Solutions Inc. (NASDAQ:VIAV) 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.
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 NEM to grow earnings at a 6.88% annual rate over the next 5 years. Comparatively, VIAV is expected to grow at a 10.00% annual rate. All else equal, VIAV’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 18.87% for Viavi Solutions Inc. (VIAV). NEM’s ROI is 5.80% while VIAV has a ROI of -0.50%. The interpretation is that NEM’s business generates a higher return on investment than VIAV’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. NEM’s free cash flow (“FCF”) per share for the trailing twelve months was +0.75. Comparatively, VIAV’s free cash flow per share was +0.08. On a percent-of-sales basis, NEM’s free cash flow was 5.45% while VIAV converted 0% of its revenues into cash flow. This means that, for a given level of sales, NEM 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. NEM has a current ratio of 3.60 compared to 2.20 for VIAV. This means that NEM can more easily cover its most immediate liabilities over the next twelve months. NEM’s debt-to-equity ratio is 0.38 versus a D/E of 1.10 for VIAV. VIAV is therefore the more solvent of the two companies, and has lower financial risk.
NEM trades at a forward P/E of 23.70, a P/B of 1.93, and a P/S of 2.78, compared to a forward P/E of 13.94, a P/B of 2.86, and a P/S of 2.75 for VIAV. NEM 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 is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. NEM is currently priced at a -12.37% to its one-year price target of 43.81. Comparatively, VIAV is -20.07% relative to its price target of 11.86. This suggests that VIAV 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 NEM and 2.10 for VIAV, which implies that analysts are more bullish on the outlook for NEM.
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. NEM has a beta of 0.29 and VIAV’s beta is 1.01. NEM’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. NEM has a short ratio of 2.03 compared to a short interest of 4.64 for VIAV. This implies that the market is currently less bearish on the outlook for NEM.
Newmont Mining Corporation (NYSE:NEM) beats Viavi Solutions Inc. (NASDAQ:VIAV) on a total of 9 of the 14 factors compared between the two stocks. NEM 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, NEM has better sentiment signals based on short interest.