Earnings

Which Market Offer More Value? – Tata Motors Limited (TTM), MercadoLibre, Inc. (MELI)

The shares of Tata Motors Limited have decreased by more than -20.93% this year alone. The shares recently went down by -2.13% or -$0.57 and now trades at $26.15. The shares of MercadoLibre, Inc. (NASDAQ:MELI), has jumped by 2.58% year to date as of 04/16/2018. The shares currently trade at $322.78 and have been able to report a change of -5.80% over the past one week.

The stock of Tata Motors Limited and MercadoLibre, Inc. were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 45.00% versus 36.19%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that TTM will grow it’s earning at a 45.00% annual rate in the next 5 years. This is in contrast to MELI which will have a positive growth at a 36.19% annual rate. This means that the higher growth rate of TTM implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. These figures suggest that MELI ventures generate a higher ROI than that of TTM.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, TTM’s free cash flow per share is a positive 0, while that of MELI is negative -0.19.

Valuation

TTM currently trades at a P/B of 2.16, and a P/S of 2.10 while MELI trades at a forward P/E of 81.51, a P/B of 43.74, and a P/S of 10.12. This means that looking at the earnings, book values and sales basis, TTM is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of TTM is currently at a -26.34% to its one-year price target of 35.50. Looking at its rival pricing, MELI is at a -12.48% relative to its price target of 368.81.




When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), TTM is given a 2.00 while 2.90 placed for MELI. This means that analysts are more bullish on the outlook for MELI stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for TTM is 2.27 while that of MELI is just 3.24. This means that analysts are more bullish on the forecast for TTM stock.

Conclusion

The stock of MercadoLibre, Inc. defeats that of Tata Motors Limited when the two are compared, with MELI taking 3 out of the total factors that were been considered. MELI happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, MELI is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for MELI is better on when it is viewed on short interest.

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