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Vistra Energy Corp. (VST) and Tapestry, Inc. (TPR) Go Head-to-head

Vistra Energy Corp. (NYSE:VST) shares are up more than 20.03% this year and recently increased 1.57% or $0.34 to settle at $21.99. Tapestry, Inc. (NYSE:TPR), on the other hand, is up 20.26% year to date as of 04/16/2018. It currently trades at $53.19 and has returned 1.10% during the past week.

Vistra Energy Corp. (NYSE:VST) and Tapestry, Inc. (NYSE:TPR) are the two most active stocks in the Electric Utilities industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

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. Comparatively, TPR is expected to grow at a 11.73% annual rate. All else equal, TPR’s higher growth rate would imply a greater potential for capital appreciation.

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. EBITDA margin of 10.56% for Tapestry, Inc. (TPR). VST’s ROI is 1.30% while TPR has a ROI of 13.50%. The interpretation is that TPR’s business generates a higher return on investment than VST’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. VST’s free cash flow (“FCF”) per share for the trailing twelve months was +1.18. Comparatively, TPR’s free cash flow per share was +1.26. On a percent-of-sales basis, VST’s free cash flow was 9.31% while TPR converted 8% of its revenues into cash flow. This means that, for a given level of sales, VST 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. VST has a current ratio of 2.00 compared to 1.90 for TPR. This means that VST can more easily cover its most immediate liabilities over the next twelve months. VST’s debt-to-equity ratio is 0.70 versus a D/E of 0.91 for TPR. TPR is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

VST trades at a forward P/E of 16.11, a P/B of 1.48, and a P/S of 1.73, compared to a forward P/E of 18.39, a P/B of 5.13, and a P/S of 2.92 for TPR. VST is the cheaper of the two stocks on an earnings, book value and sales basis. 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

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. VST is currently priced at a -5.82% to its one-year price target of 23.35. Comparatively, TPR is -1.5% relative to its price target of 54.00. This suggests that VST is the better investment over the next year.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. VST has a short ratio of 6.61 compared to a short interest of 3.03 for TPR. This implies that the market is currently less bearish on the outlook for TPR.

Summary




Vistra Energy Corp. (NYSE:VST) beats Tapestry, Inc. (NYSE:TPR) on a total of 9 of the 14 factors compared between the two stocks. VST has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, VST is the cheaper of the two stocks on an earnings, book value and sales basis, VST is more undervalued relative to its price target. Finally, NOK has better sentiment signals based on short interest.

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