Global

A Side-by-side Analysis of New Gold Inc. (NGD) and CBL & Associates Properties, Inc (CBL)

New Gold Inc. (NYSE:NGD) shares are down more than -26.14% this year and recently increased 0.41% or $0.01 to settle at $2.43. CBL & Associates Properties, Inc (NYSE:CBL), on the other hand, is down -24.20% year to date as of 04/16/2018. It currently trades at $4.29 and has returned -2.05% during the past week.

New Gold Inc. (NYSE:NGD) and CBL & Associates Properties, Inc (NYSE:CBL) are the two most active stocks in the Gold industry 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.

Growth

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 NGD to grow earnings at a 9.61% annual rate over the next 5 years. Comparatively, CBL is expected to grow at a 4.90% annual rate. All else equal, NGD’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. EBITDA margin of 73.35% for CBL & Associates Properties, Inc (CBL). NGD’s ROI is -3.00% while CBL has a ROI of 5.00%. The interpretation is that CBL’s business generates a higher return on investment than NGD’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. NGD’s free cash flow (“FCF”) per share for the trailing twelve months was -0.01. Comparatively, CBL’s free cash flow per share was +0.23. On a percent-of-sales basis, NGD’s free cash flow was -0% while CBL converted 0% of its revenues into cash flow. This means that, for a given level of sales, NGD is able to generate more free cash flow for investors.

Liquidity and Financial Risk

NGD’s debt-to-equity ratio is 0.47 versus a D/E of 3.71 for CBL. CBL is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

NGD trades at a forward P/E of 15.68, a P/B of 0.66, and a P/S of 2.32, compared to a forward P/E of 165.00, a P/B of 0.64, and a P/S of 0.80 for CBL. NGD is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B 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. NGD is currently priced at a -39.4% to its one-year price target of 4.01. Comparatively, CBL is 0.47% relative to its price target of 4.27. This suggests that NGD is the better investment over the next year.

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. NGD has a beta of 0.23 and CBL’s beta is 1.21. NGD’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. NGD has a short ratio of 1.32 compared to a short interest of 10.01 for CBL. This implies that the market is currently less bearish on the outlook for NGD.

Summary




New Gold Inc. (NYSE:NGD) beats CBL & Associates Properties, Inc (NYSE:CBL) on a total of 8 of the 14 factors compared between the two stocks. NGD is growing fastly, higher liquidity and has lower financial risk. NGD is more undervalued relative to its price target. Finally, NGD has better sentiment signals based on short interest.

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