CenturyLink, Inc. (NYSE:CTL) shares are up more than 16.31% this year and recently increased 7.54% or $1.36 to settle at $19.40. Altice USA, Inc. (NYSE:ATUS), on the other hand, is down -14.70% year to date as of 05/10/2018. It currently trades at $18.11 and has returned 7.61% during the past week.
CenturyLink, Inc. (NYSE:CTL) and Altice USA, Inc. (NYSE:ATUS) are the two most active stocks in the Telecom Services – Domestic 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 CTL to grow earnings at a -14.40% annual rate over the next 5 years. Comparatively, ATUS is expected to grow at a 3.00% annual rate. All else equal, ATUS’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. CenturyLink, Inc. (CTL) has an EBITDA margin of 33.8%. This suggests that CTL underlying business is more profitable CTL’s ROI is 2.90% while ATUS has a ROI of 2.80%. The interpretation is that CTL’s business generates a higher return on investment than ATUS’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. CTL’s free cash flow (“FCF”) per share for the trailing twelve months was -0.15. Comparatively, ATUS’s free cash flow per share was +0.65. On a percent-of-sales basis, CTL’s free cash flow was -0.91% while ATUS converted 5.14% of its revenues into cash flow. This means that, for a given level of sales, ATUS is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. CTL has a current ratio of 0.90 compared to 0.30 for ATUS. This means that CTL can more easily cover its most immediate liabilities over the next twelve months. CTL’s debt-to-equity ratio is 1.61 versus a D/E of 3.83 for ATUS. ATUS is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CTL trades at a forward P/E of 18.28, a P/B of 0.73, and a P/S of 1.19, compared to a forward P/E of 59.57, a P/B of 2.33, and a P/S of 1.46 for ATUS. CTL 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. CTL is currently priced at a -1.72% to its one-year price target of 19.74. Comparatively, ATUS is -33.74% relative to its price target of 27.33. This suggests that ATUS is the better investment over the next year.
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. CTL has a short ratio of 9.73 compared to a short interest of 14.76 for ATUS. This implies that the market is currently less bearish on the outlook for CTL.Summary
CenturyLink, Inc. (NYSE:CTL) beats Altice USA, Inc. (NYSE:ATUS) on a total of 8 of the 14 factors compared between the two stocks. CTL is more profitable, generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, CTL is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CTL has better sentiment signals based on short interest.