Global

The Boeing Company (BA) vs. Goldcorp Inc. (GG): Which is the Better Investment?

The Boeing Company (NYSE:BA) shares are up more than 12.50% this year and recently increased 0.76% or $2.49 to settle at $331.77. Goldcorp Inc. (NYSE:GG), on the other hand, is up 12.53% year to date as of 04/16/2018. It currently trades at $14.37 and has returned 3.16% during the past week.

The Boeing Company (NYSE:BA) and Goldcorp Inc. (NYSE:GG) are the two most active stocks in the Aerospace/Defense Products & Services industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect BA to grow earnings at a 18.10% annual rate over the next 5 years. Comparatively, GG is expected to grow at a 37.06% annual rate. All else equal, GG’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. The Boeing Company (BA) has an EBITDA margin of 13.36%. This suggests that BA underlying business is more profitable BA’s ROI is 64.30% while GG has a ROI of 5.90%. The interpretation is that BA’s business generates a higher return on investment than GG’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. BA’s free cash flow (“FCF”) per share for the trailing twelve months was +2.69. Comparatively, GG’s free cash flow per share was -0.28. On a percent-of-sales basis, BA’s free cash flow was 1.7% while GG converted -7.11% of its revenues into cash flow. This means that, for a given level of sales, BA 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. BA has a current ratio of 1.20 compared to 0.90 for GG. This means that BA can more easily cover its most immediate liabilities over the next twelve months. BA’s debt-to-equity ratio is 31.32 versus a D/E of 0.20 for GG. BA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BA trades at a forward P/E of 19.85, a P/B of 552.95, and a P/S of 2.14, compared to a forward P/E of 18.64, a P/B of 0.88, and a P/S of 3.66 for GG. BA 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. BA is currently priced at a -14.09% to its one-year price target of 386.17. Comparatively, GG is -19.22% relative to its price target of 17.79. This suggests that GG 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. BA has a beta of 1.39 and GG’s beta is 0.10. GG’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. BA has a short ratio of 1.05 compared to a short interest of 1.75 for GG. This implies that the market is currently less bearish on the outlook for BA.

Summary

The Boeing Company (NYSE:BA) beats Goldcorp Inc. (NYSE:GG) on a total of 8 of the 14 factors compared between the two stocks. BA is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, BA has better sentiment signals based on short interest.

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