Best Buy Co., Inc. (NYSE:BBY) shares are up more than 5.02% this year and recently increased 1.10% or $0.78 to settle at $71.91. CA, Inc. (NASDAQ:CA), on the other hand, is up 5.17% year to date as of 04/16/2018. It currently trades at $35.00 and has returned 5.14% during the past week.
Best Buy Co., Inc. (NYSE:BBY) and CA, Inc. (NASDAQ:CA) are the two most active stocks in the Electronics Stores 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
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect BBY to grow earnings at a 16.20% annual rate over the next 5 years. Comparatively, CA is expected to grow at a 5.71% annual rate. All else equal, BBY’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 34.83% for CA, Inc. (CA). BBY’s ROI is 26.30% while CA has a ROI of 9.90%. The interpretation is that BBY’s business generates a higher return on investment than CA’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. BBY’s free cash flow (“FCF”) per share for the trailing twelve months was +2.16. Comparatively, CA’s free cash flow per share was +0.48. On a percent-of-sales basis, BBY’s free cash flow was 1.5% while CA converted 4.96% of its revenues into cash flow. This means that, for a given level of sales, CA 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. BBY has a current ratio of 1.30 compared to 1.20 for CA. This means that BBY can more easily cover its most immediate liabilities over the next twelve months. BBY’s debt-to-equity ratio is 0.38 versus a D/E of 0.49 for CA. CA is therefore the more solvent of the two companies, and has lower financial risk.Valuation
BBY trades at a forward P/E of 13.43, a P/B of 5.76, and a P/S of 0.48, compared to a forward P/E of 12.79, a P/B of 2.53, and a P/S of 3.51 for CA. BBY is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. BBY is currently priced at a -5.09% to its one-year price target of 75.77. Comparatively, CA is -0.28% relative to its price target of 35.10. This suggests that BBY is the better investment over the next year.
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. BBY has a beta of 0.91 and CA’s beta is 0.68. CA’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. BBY has a short ratio of 8.72 compared to a short interest of 4.29 for CA. This implies that the market is currently less bearish on the outlook for CA.Summary
Best Buy Co., Inc. (NYSE:BBY) beats CA, Inc. (NASDAQ:CA) on a total of 8 of the 14 factors compared between the two stocks. BBY is growing fastly, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. BBY is more undervalued relative to its price target.