Target Corporation (NYSE:TGT) shares are up more than 10.34% this year and recently increased 0.67% or $0.48 to settle at $72.00. Newmont Mining Corporation (NYSE:NEM), on the other hand, is up 10.39% year to date as of 04/16/2018. It currently trades at $41.42 and has returned 7.36% during the past week.
Target Corporation (NYSE:TGT) and Newmont Mining Corporation (NYSE:NEM) are the two most active stocks in the Discount, Variety Stores industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect TGT to grow earnings at a 6.23% annual rate over the next 5 years. Comparatively, NEM is expected to grow at a 9.14% annual rate. All else equal, NEM’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 28.58% for Newmont Mining Corporation (NEM). TGT’s ROI is 13.20% while NEM has a ROI of 5.80%. The interpretation is that TGT’s business generates a higher return on investment than NEM’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. TGT’s free cash flow (“FCF”) per share for the trailing twelve months was +2.95. Comparatively, NEM’s free cash flow per share was +0.75. On a percent-of-sales basis, TGT’s free cash flow was 2.23% while NEM converted 5.45% 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. TGT has a current ratio of 1.00 compared to 3.60 for NEM. This means that NEM can more easily cover its most immediate liabilities over the next twelve months. TGT’s debt-to-equity ratio is 0.99 versus a D/E of 0.38 for NEM. TGT is therefore the more solvent of the two companies, and has lower financial risk.Valuation
TGT trades at a forward P/E of 13.17, a P/B of 3.33, and a P/S of 0.55, compared to a forward P/E of 24.32, a P/B of 2.08, and a P/S of 3.00 for NEM. 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. TGT is currently priced at a -5.65% to its one-year price target of 76.31. Comparatively, NEM is -6.27% relative to its price target of 44.19. This suggests that NEM is the better investment over the next year.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. TGT has a beta of 0.71 and NEM’s beta is 0.31. 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. TGT has a short ratio of 6.68 compared to a short interest of 1.35 for NEM. This implies that the market is currently less bearish on the outlook for NEM.Summary
Newmont Mining Corporation (NYSE:NEM) beats Target Corporation (NYSE:TGT) on a total of 10 of the 14 factors compared between the two stocks. NEM generates a higher return on investment, is more profitable, has a higher cash conversion rate, higher liquidity and has lower financial risk. NEM is more undervalued relative to its price target. Finally, NEM has better sentiment signals based on short interest.