CenturyLink, Inc. (NYSE:CTL) shares are up more than 4.08% this year and recently increased 1.17% or $0.2 to settle at $17.36. The TJX Companies, Inc. (NYSE:TJX), on the other hand, is up 11.12% year to date as of 04/05/2018. It currently trades at $84.96 and has returned 5.29% during the past week.

CenturyLink, Inc. (NYSE:CTL) and The TJX Companies, Inc. (NYSE:TJX) are the two most active stocks in the Telecom Services – Domestic industry 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.

**Growth**

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, TJX is expected to grow at a 10.00% annual rate. All else equal, TJX’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. 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 12.78% for The TJX Companies, Inc. (TJX). CTL’s ROI is 2.90% while TJX has a ROI of 33.60%. The interpretation is that TJX’s business generates a higher return on investment than CTL’s.

**Cash Flow**

The value of a stock is simply the present value of its future free cash flows. CTL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, TJX’s free cash flow per share was +1.05. On a percent-of-sales basis, CTL’s free cash flow was -0.91% while TJX converted 1.85% of its revenues into cash flow. This means that, for a given level of sales, TJX is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. CTL has a current ratio of 0.90 compared to 1.50 for TJX. This means that TJX 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 0.48 for TJX. CTL is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

CTL trades at a forward P/E of 14.84, a P/B of 0.66, and a P/S of 1.04, compared to a forward P/E of 16.02, a P/B of 11.59, and a P/S of 1.48 for TJX. CTL 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

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. CTL is currently priced at a -12.06% to its one-year price target of 19.74. Comparatively, TJX is -7.2% relative to its price target of 91.55. This suggests that CTL is the better investment over the next year.

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. CTL has a beta of 0.80 and TJX’s beta is 0.66. TJX’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. CTL has a short ratio of 5.95 compared to a short interest of 3.43 for TJX. This implies that the market is currently less bearish on the outlook for TJX.

**Summary**

The TJX Companies, Inc. (NYSE:TJX) beats CenturyLink, Inc. (NYSE:CTL) on a total of 9 of the 14 factors compared between the two stocks. TJX 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. In terms of valuation, CTL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, TJX has better sentiment signals based on short interest.