CenturyLink, Inc. (NYSE:CTL) shares are down more than -1.02% this year and recently increased 1.35% or $0.22 to settle at $16.51. The Mosaic Company (NYSE:MOS), on the other hand, is down -6.74% year to date as of 04/03/2018. It currently trades at $23.93 and has returned -2.92% during the past week.
CenturyLink, Inc. (NYSE:CTL) and The Mosaic Company (NYSE:MOS) are the two most active stocks in the market based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
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 CTL to grow earnings at a -12.12% annual rate over the next 5 years. Comparatively, MOS is expected to grow at a 13.20% annual rate. All else equal, MOS’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 15.89% for The Mosaic Company (MOS). CTL’s ROI is 2.90% while MOS has a ROI of 2.90%. The interpretation is that CTL’s business generates a higher return on investment than MOS’s.
Cash is king when it comes to investing. CTL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, MOS’s free cash flow per share was +0.49. On a percent-of-sales basis, CTL’s free cash flow was -0.91% while MOS converted 2.32% of its revenues into cash flow. This means that, for a given level of sales, MOS is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. CTL has a current ratio of 0.90 compared to 2.30 for MOS. This means that MOS can more easily cover its most immediate liabilities over the next twelve months. CTL’s debt-to-equity ratio is 1.61 versus a D/E of 0.54 for MOS. CTL is therefore the more solvent of the two companies, and has lower financial risk.
CTL trades at a forward P/E of 14.11, a P/B of 0.62, and a P/S of 0.99, compared to a forward P/E of 13.32, a P/B of 0.87, and a P/S of 1.10 for MOS. 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. CTL is currently priced at a -16.36% to its one-year price target of 19.74. Comparatively, MOS is -17.94% relative to its price target of 29.16. This suggests that MOS 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 2.60 for CTL and 2.60 for MOS, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CTL has a beta of 0.80 and MOS’s beta is 1.28. CTL’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. CTL has a short ratio of 5.97 compared to a short interest of 2.68 for MOS. This implies that the market is currently less bearish on the outlook for MOS.
The Mosaic Company (NYSE:MOS) beats CenturyLink, Inc. (NYSE:CTL) on a total of 8 of the 14 factors compared between the two stocks. MOS is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. MOS is more undervalued relative to its price target. Finally, MOS has better sentiment signals based on short interest.