Hanesbrands Inc. (NYSE:HBI) shares are down more than -13.68% this year and recently decreased -0.44% or -$0.08 to settle at $18.05. Liberty Global plc (NASDAQ:LBTYA), on the other hand, is down -13.95% year to date as of 04/16/2018. It currently trades at $30.84 and has returned -1.44% during the past week.
Hanesbrands Inc. (NYSE:HBI) and Liberty Global plc (NASDAQ:LBTYA) are the two most active stocks in the Textile – Apparel Clothing 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 consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect HBI to grow earnings at a 4.08% annual rate over the next 5 years.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 43.91% for Liberty Global plc (LBTYA). HBI’s ROI is 15.20% while LBTYA has a ROI of 2.60%. The interpretation is that HBI’s business generates a higher return on investment than LBTYA’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. HBI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.67. Comparatively, LBTYA’s free cash flow per share was +1.90. On a percent-of-sales basis, HBI’s free cash flow was 3.73% while LBTYA converted 10.22% of its revenues into cash flow. This means that, for a given level of sales, LBTYA is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. HBI has a current ratio of 1.90 compared to 0.40 for LBTYA. This means that HBI can more easily cover its most immediate liabilities over the next twelve months. HBI’s debt-to-equity ratio is 5.78 versus a D/E of 6.20 for LBTYA. LBTYA is therefore the more solvent of the two companies, and has lower financial risk.Valuation
HBI trades at a forward P/E of 9.41, a P/B of 9.60, and a P/S of 1.03, compared to a forward P/E of 30.26, a P/B of 3.84, and a P/S of 1.64 for LBTYA. 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. HBI is currently priced at a -21.11% to its one-year price target of 22.88. Comparatively, LBTYA is -25.99% relative to its price target of 41.67. This suggests that LBTYA is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. HBI has a beta of 0.73 and LBTYA’s beta is 1.62. HBI’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. HBI has a short ratio of 9.72 compared to a short interest of 2.01 for LBTYA. This implies that the market is currently less bearish on the outlook for LBTYA.Summary
Liberty Global plc (NASDAQ:LBTYA) beats Hanesbrands Inc. (NYSE:HBI) on a total of 7 of the 14 factors compared between the two stocks. LBTYA is growing fastly, has higher cash flow per share and has a higher cash conversion rate. LBTYA is more undervalued relative to its price target. Finally, LBTYA has better sentiment signals based on short interest.